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The business cycle in Ecuador: an analysis of stylised facts before and after dollarisation

Abstract:

This study examines stylised facts related to the business cycle in Ecuador for the period of 1990–2019. To reflect on the dollarisation process that the country went through by the end of 1999, the analysis is conducted for two sub-periods: 1990–1999 and 2000–2019. The paper investigates a wide range of macroeconomic variables for Ecuador, including variables regarding demand, the labour market, nominal variables, and variables related to an open economy. The sensitivity of correlations is studied through two detrending techniques: 1) the modified Hodrick-Prescott (MHP) filter; 2) a Hodrick-Prescott filter with a smoothing parameter of 1,600. The results reveal substantial changes in the cyclical behaviour of the Ecuadorian economy under dollarisation. In particular, the country shows greater dependence on the international market and high vulnerability to demand shocks.