Oil prices and economic cycles in a dollarized economy: A Markov Switching Regime approach applied to the Ecuadorian Economy

The economies of commodity exporters are highly exposed to commodity price cycles; however, booms and busts can cause asymmetric impacts within the economy. Understanding the dynamics of these cycles can assist in the management of their broader impacts on economic and social wellbeing, Accordingly, the objective of this research is to analyze the relationship between price variations of raw materials, specificallyoil, and the economic cycle of a dollarized economy such as Ecuador’s. The research is based on a Markov regime switching model, which allows establishing states for the economic cycle and the transitions between cycles as a consequence of oil price shocks. The research was carried out for the period 1991:01-2018:04. The results obtained show evidence that oil price variations are related to changes in the state ofthe business cycle in the Ecuadorian economy.

• Main Author: Carvajal, Alexander (author)
• Other Authors: Martin-Mayoral, Fernando (author)
• Format: article
• Language: spa
• Published: 2021
• Subjects: Economic growth; Business cycle; Time Series; non-linear models; Markov Switching Model; Crecimiento económico; Ciclo económico; Series de Tiempo; modelos no lineales; Cambio de Régimen de Markov
• Online Access: https://estudioseconomicos.bce.fin.ec/index.php/RevistaCE/article/view/274