The Use of BVARs in the Analysis of Emerging Economies

The process of internationalisation that many Spanish banks have embarked upon in recent years has resulted in the need for much closer monitoring of the economies in which they are present, especially by a supervisory body such as the Banco de Espana. In this paper, we present a comprehensive theoretical and empirical modelling approach, developing a set of …five country-specific structural BVARs for Brazil, Mexico, Turkey, Chile and Peru, the economies representing the largest exposures of Spanish banks to the emerging markets. The results obtained show that our modelling strategy provides useful tools to: (i) analyse the structural shocks that underlie their recent macroeconomic behaviour; (ii) study the impact of certain decisions of policymakers on GDP, inflation and other variables; and (iii) carry out accurate conditional and unconditional projections two years ahead of the most policy-relevant variables. These projections, together with the “analyst’s judgement”, constitute the bulk of our assessment of the future behaviour of these economies.