Backcasting Latin America

Latin America is traditionally seen as economically volatile. Yet there has been relatively little work on the evolution of business cycles in the region and on how their main features compare with those of other countries and regions. Lack of data, especially before World War II, has hampered such research. A new technique seeks to compensate for those data deficiencies by reconstructing, or backcasting, GDP data using methods similar to those that economists have employed to identify and forecast business cycles. This methodology is used to reconstruct historical real GDP estimates for four Latin American countries -- Argentina, Brazil, Chile, and Mexico (the LA-4) -- spanning 1870-2004. The backcasted GDP for the LA-4 countries showed that business cycles in each country bear some similarity in timing and magnitude. Latin America's business cycle performance still lags behind that of other emerging market peers. Volatility in Latin America has remained higher than in Asia and emerging Europe.