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Devalution, Output and Wages

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  • JoaoRicardo Faria
  • Francisco Galrao Caneiro
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    Abstract

    This paper analyses the relationship between the real exchange rate, real wages and aggregate output. We present a model in which changes in aggregate output and in the real exchange rate precede changes in real wages, and where output is expected to positively affect real wages while changes in the real exchange rate are expected to negatively affect real wages. The empirical analysis is carried out for the case of Brazil, a country which has recently undergone an exchange-rate-based stabilization plan and where the impact of exchange rate anchoring on the real sector seems to be relevant. Using monthly data for the period 1985 to 2001, Granger causality tests and Johansen's Maximum likelihood estimates confirmed the assumptions of our model by showing that real wages are positively affected by output and negatively impacted by the real exchange rate in the long run. [F31, F41, J39]

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    Bibliographic Info

    Article provided by Korean International Economic Association in its journal International Economic Journal.

    Volume (Year): 17 (2003)
    Issue (Month): 4 ()
    Pages: 15-27
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    Handle: RePEc:taf:intecj:v:17:y:2003:i:4:p:15-27

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    References

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    1. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper 90-08, Federal Reserve Bank of Kansas City.
    2. João R. Faria & Francisco Galrão Carneiro, 2001. "Does High Inflation Affect Growth in the Long and Short Run?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 89-105, May.
    3. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    4. Carlos F. Diaz Alejandro, 1963. "A Note on the Impact of Devaluation and the Redistributive Effect," Journal of Political Economy, University of Chicago Press, vol. 71, pages 577.
    5. Joshua Aizenman & Jacob A. Frenkel, 1989. "Sectorial Wages and the Real Exchange Rate," NBER Working Papers 1801, National Bureau of Economic Research, Inc.
    6. Nwanna , Gladson I., 1994. "Currency Devaluation and Growth," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 47(1), pages 69-83.
    7. Nugent, Jeffrey B & Glezakos, Constantine, 1982. "Phillips Curves in Developing Countries: The Latin American Case," Economic Development and Cultural Change, University of Chicago Press, vol. 30(2), pages 321-34, January.
    8. Marquez, Jaime & McNeilly, Caryl, 1988. "Income and Price Elasticities for Exports of Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 306-14, May.
    9. Faria, Joao Ricardo, 2001. "Markup, indexation and inflation: a bargaining approach," Economic Modelling, Elsevier, vol. 18(2), pages 313-323, April.
    10. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    11. Geweke, John & Meese, Richard & Dent, Warren, 1983. "Comparing alternative tests of causality in temporal systems : Analytic results and experimental evidence," Journal of Econometrics, Elsevier, vol. 21(2), pages 161-194, February.
    12. Nazmi, Nader, 1997. "Exchange rate-based stabilization in Latin America," World Development, Elsevier, vol. 25(4), pages 519-535, January.
    13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    14. Cati, Regina Celia & Garcia, Marcio G P & Perron, Pierre, 1999. "Unit Roots in the Presence of Abrupt Governmental Interventions with an Application to Brazilian Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 27-56, Jan.-Feb..
    15. Talan Iscan, 1997. "Devaluations and aggregate output fluctuations: a random coefficient regression model for Mexico," Applied Economics, Taylor and Francis Journals, vol. 29(12), pages 1575-1584.
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