Cuban Macroeconomic Trends 1985 - 2013, External Shocks and Policy

The paper focuses on analyzing the leading macroeconomic trends and policies in Cuba from 1985-2013. Five macroeconomic indexes were estimated using dynamic factor models. The correlations between the estimated indexes and the GDP growth rate show that, on average, fiscal policy was procyclical while monetary policy was countercyclical. Econometric simulations confirmed the economy's high vulnerability to an eventual collapse of relations with Venezuela; it would cause GDP to contract by about 10% over three years. The analysis also suggests that pending monetary reforms could create negative pressure on goods production and on households' living conditions, which could not be mitigated by an expansionary fiscal policy. Instead, the negative effects of such shocks can be mitigated only through greater international openness; this is a more feasible objective given the current situation of diminishing tensions with the US government