Graduation Year
2026
Date of Submission
11-2026
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Reader 1
Richard Burdekin
Abstract
The United States economy, from 2010 to 2024, has gone through such major shocks as COVID-19 and the oil shocks, which led the Federal Reserve to respond with policies that created a domino effect on other economies. Latin American economies are deeply tied to that of the US through financial and real sectors, making them especially vulnerable to US economic disruptions and policy shifts. Although previous studies show how US monetary decisions transmit to other countries, there has been less focus on how these shocks affect countries' real and financial sectors, which eventually influence product-based firms' daily operations.
To analyze these effects, this thesis uses monthly data from five Latin American countries (Brazil, Chile, Colombia, Mexico, and Peru) from 2010 to 2024 and organized them in a panel, which included real (GDP Growth, Oil Price, M2, Exchange rates) and financial (stock market indices, S&P 500, short-term rate) variables. Domestic vs. US variables were incorporated in the fixed-effects panel regressions. To control for global monthly shocks, I ran the regressions with a fixed effect, along with a lagged dependent variable and other lags, so that the regression could capture persistent and short-run dynamics.
On the GDP growth model, after including the fixed effects the oil-price shocks became negative and significant. Additionally, GDP maintained its strong persistence, which confirms that there is a slow real-sector adjustment in Latin America. In the Financial model, the domestic short-term rate is the only consistently significant predictor of stock market performance (higher rates generating large negative effects). The S&P 500 shows little to no spillover into Latin American countries. These results suggest that Latin America is more vulnerable to global supply and domestic monetary shocks, and that product-based firms face higher production and shipping costs (due to oil price increases) and higher borrowing costs during monetary tightening.
Recommended Citation
Santillan-Leal, Sergio, "How US Economic Shocks Transmit to Latin American Countries and Affect Product-based Firms" (2026). CMC Senior Theses. 4344.
https://scholarship.claremont.edu/cmc_theses/4344
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.
