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Fundamentals of Equilibrium Real Exchange Rate

Author

Listed:
  • Juan Benítez

    (Universidad de la República, Facultad de Ciencias Económicas y de Administración, (Montevideo, Uruguay))

  • Gabriela Mordecki

    (Universidad de la República, Facultad de Ciencias Económicas y de Administración, Instituto de Economía (Montevideo, Uruguay))

Abstract

This paper examines the evolution of price competitiveness of Uruguayan economy, assessing the presence of "Balassa-Samuelson Effect" and a change in the economy’s international integration, in a context of income and aggregate expenditure growth, through Johansen methodology. We found a long-term relationship between RER, the differential in labor productivity between Uruguay and U.S., extra-regional exports and total consumption. Furthermore, we found that the elasticities of RER to its long-term fundamentals are in line with the theory. We conclude that the decline in the equilibrium real exchange rate in the last two decades is due to the movement of its fundamentals. / Este trabajo examina la evolución de la competitividad-precio de la economía Uruguaya, evaluando la presencia del "Efecto Balassa-Samuelson" y un cambio en la inserción internacional de la economía, a través de la metodología de Johansen. Se encontró una relación de cointegración entre el TCR, el diferencial de la productividad laboral entre Uruguay y EE.UU., las exportaciones extra-regionales y el consumo total. Además se halló que la elasticidad del TCR a sus fundamentos está en línea con la teoría. Así se concluye que la disminución del TCR de equilibrio en las dos últimas décadas se debe al movimiento de sus fundamentos.

Suggested Citation

  • Juan Benítez & Gabriela Mordecki, 2012. "Fundamentals of Equilibrium Real Exchange Rate," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 50(1), pages 59-92, Diciembre.
    • Handle: RePEc:ief:reveye:v:50:y:2012:i:1:p:59-92
    DOI: 10.55444/2451.7321.2012.v50.n1.10251
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Real exchange rate; cointegration; fundamentals;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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