Financial liberalization, structural change, and real exchange rate appreciations
AbstractThe last twenty years have witnessed periods of sustained appreciations of the real exchange rate in emerging economies. The case of Mexico between 1988 and 2002 is representative of several episodes in Latin America and Central and Eastern Europe in which countries opening to capital flows experienced large appreciations accompanied by a significant reallocation of workers towards the non-tradable sector. We account for these facts using a two sector dynamic general equilibrium model of a small open economy with frictions to labor reallocation and two driving forces: (i) A decline in the cost of borrowing in foreign markets, and (ii) differential productivity growth across sectors. These two mechanisms account together for 60% of the decline in the domestic relative price of tradables in Mexico and for a large fraction of the observed reallocation of labor across sectors. The decline in the interest rate faced by Mexico in international markets is quantitatively the most important channel. Our results are robust to the inclusion of terms of trade into the model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 85 (2011)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505552
Real exchange rate; Financial liberalization; Structural transformation;
Other versions of this item:
- Felipe Meza & Carlos Urrutia, 2010. "Financial Liberalization, Structural Change, and Real Exchange Rate Appreciations," IMF Working Papers 10/63, International Monetary Fund.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Luigi Bonatti & Andrea Fracasso, 2012. "The costs of rebalancing the China-US co-dependency," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(1), pages 59-106.
- Sangeeta Pratap & Carlos Urrutia, 2011.
"Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises,"
1104, Centro de Investigacion Economica, ITAM.
- Sangeeta Pratap & Carlos Urrutia, 2012. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 336-358, July.
- Sangeeta Pratap & Carlos Urrutia, 2010. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Hunter College Department of Economics Working Papers 429, Hunter College: Department of Economics.
- Beker, Victor A., 2012. "A case study on trade liberalization: Argentina in the 1990s," Economics Discussion Papers 2012-3, Kiel Institute for the World Economy.
- Lagoarde-Segot, Thomas & Leoni, Patrick L., 2013. "Pandemics of the poor and banking stability," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4574-4583.
- Bonatti, Luigi & Fracasso, Andrea, 2013. "Regime switches in the Sino-American co-dependency: Growth and structural change in China," Structural Change and Economic Dynamics, Elsevier, vol. 25(C), pages 1-32.
- Guyot, Alexis & Lagoarde-Segot, Thomas & Neaime, Simon, 2014. "Foreign shocks and international cost of equity destabilization. Evidence from the MENA region," Emerging Markets Review, Elsevier, vol. 18(C), pages 101-122.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.