Business fluctuations depend not only on monetary policy. Financial conditions matter too as demonstrated by advanced economies during the current Great Recession, and by emerging economies repeatedly due to the so called external factors of monetary policy. 
The first chart shows the combined impact of the external factors of monetary policy in Latin America and their relationship with the output gap. The countries that are included are five of the largest ones in Latin American: Brazil, Chile, Colombia, México and Peru. In the graph the term “Latin America” refers to the simple average of these countries. The external factors are capital flows, the price of exports and external GDP. The three factors can be added up since all of them are measured in units of GDP. The standard deviation of the cycles of the external factors is 4.5 points of GDP, somewhat larger than the standard deviation of the cycles of GDP, 3.2. The correlation between the external factors and the output gap is 73.5 and highly significant.
The second chart shows each of the external factors. The standard deviation of cycle of capital flows and the price of exports is somewhat smaller than that of the output gap, 2.4 and 2.7 respectively. The standard deviation of external output is one order of magnitude smaller than the one of output, 0.3. The correlation between capital flows and the price of exports with the output gap is 0.511 and 0.563 respectively and significant. The correlation of external output is smaller, 0.225, and not significant. External output is significant in México after NAFTA where the correlation is 0.806 and highly significant.
With the Great Recession all external factors have plummeted. Any growth, if at all, must come from internal sources, but an increase in government expenditure may backfire if accompanied with increased credit spreads. There is barely any other option but monetary policy and most of the monetary policy ammunition has already been spent.
One lesson may be learnt. At the trough of the cycle it is important to be able to stimulate economic activity. But more often than not, regional sovereign wealth funds and fiscal policy do not look across the cycle. Stabilization funds, properly used as in the case of Chile, and structural deficit rules as in the cases of Chile and more recently Peru can be fundamental in implementing counter-cyclical policy. From a social point of view, counter-cyclical policy is important, among other reasons, because there is hysteresis in unemployment.
Notes on the methodology
All the factors are normalized by their impact on GDP. Capital flows are the financial account of the balance of payments in percent of GDP. The price of exports is the real dollar price of exports, defined in percent changes and each change weighted by the share of exports in GDP. Accumulating these GDP-weighted changes, our measure of the price of exports is obtained after HP filtering. Foreign output is the real dollar GDP of the main partners in export trade. Under the assumption that each partner’s output is valued at PPP exchange rates which are relatively constant, a measure of the output gap can be approximated as the weighed output gap of the main export-trade partners. In order to normalize foreign output by its impact on GDP, it is multiplied by the share of exports in GDP.
Prices of exports and imports are GDP deflators, except for Brazil during 1990-1995 where unit values where used. Data for 2009 are GDP deflators for 2009Q1 and the financial account for 2009Q1 at an annual rate.