Economic policy Co-Movement in Latin America and the Caribbean

There have been numerous attempts at the formation of regional policy groupings within Latin America and the Caribbean (LAC). This paper analyses the similarities in macroeconomic policies pursued by member countries using realised correlation analysis on 26 LAC countries and observations covering the period 1970–2005. The study finds evidence of co-movement in monetary, fiscal, trade and capital account policies, with the strength of association rising over time. The main determinants of the strength of co-movement were similarity in economic size, economic shocks, transportation costs and population size.