IDEAS home Printed from https://ideas.repec.org/a/taf/macfem/v5y2012i2p161-176.html
   My bibliography  Save this article

What determines the sensitivity of the real exchange rate in Colombia to a terms of trade shock?

Author

Listed:
  • Lavan Mahadeva
  • Juan Carlos Parra Alvarez

Abstract

We show that the sensitivity of the real exchange rate to terms of trade shocks is greater the lower the elasticity of final and derived demand between domestic and imported items. We develop a novel Kalman filter-based method to estimate these key parameters for Colombia, taking account of preference shifts, technological relative price trends and errors in sectoral data. We find that the elasticity of the input of the distribution sector in transforming imports from domestic consumption reliably indicates complementarity, implying that rigidities in this sector matter in determining the sensitivity of the Colombian economy to external shocks.

Suggested Citation

  • Lavan Mahadeva & Juan Carlos Parra Alvarez, 2012. "What determines the sensitivity of the real exchange rate in Colombia to a terms of trade shock?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(2), pages 161-176, April.
    • Handle: RePEc:taf:macfem:v:5:y:2012:i:2:p:161-176
    DOI: 10.1080/17520843.2012.682595
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/17520843.2012.682595
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/17520843.2012.682595?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    2. Rakesh Mohan, 2009. "Capital account liberalization and conduct of monetary policy: the Indian experience," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 2(2), pages 215-238.
    3. Chang-jin Kim & N. Kundan Kishor & Charles R Nelson, 2006. "A Time-Varying Parameter Model for a Forward-Looking Monetary Policy Rule Based on Real-Time Data," Working Papers UWEC-2007-32, University of Washington, Department of Economics.
    4. Kim, Chang-Jin & Nelson, Charles R., 2006. "Estimation of a forward-looking monetary policy rule: A time-varying parameter model using ex post data," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1949-1966, November.
    5. Devaragan, Shantayanan & Lewis, Jeffrey D. & Robinson, Sherman, 1990. "Policy lessons from trade-focused, two-sector models," Journal of Policy Modeling, Elsevier, vol. 12(4), pages 625-657.
    6. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
    7. Cote, Denise & Kuszczak, John & Lam, Jean-Paul & Liu, Ying & St-Amant, Pierre, 2006. "A comparison of twelve macroeconomic models of the Canadian economy," Journal of Policy Modeling, Elsevier, vol. 28(5), pages 523-562, July.
    8. Devarajan, Shantayanan & Lewis, Jeffrey & Robinson, Sherman, 1990. "Policy Lessons from Two-Sector Models," CUDARE Working Papers 198566, University of California, Berkeley, Department of Agricultural and Resource Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jinho Bae & Chang-Jin Kim & Dong Kim, 2012. "The evolution of the monetary policy regimes in the U.S," Empirical Economics, Springer, vol. 43(2), pages 617-649, October.
    2. Fan, Longzhen & Yu, Yihong & Zhang, Chu, 2011. "An empirical evaluation of China's monetary policies," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 358-371, June.
    3. Tetsuji Tanaka & Jin Guo & Naruto Hiyama & Baris Karapinar, 2022. "Optimality Between Time of Estimation and Reliability of Model Results in the Monte Carlo Method: A Case for a CGE Model," Computational Economics, Springer;Society for Computational Economics, vol. 59(1), pages 151-176, January.
    4. Krolikowski, Pawel M. & McCallum, Andrew H., 2021. "Goods-market frictions and international trade," Journal of International Economics, Elsevier, vol. 129(C).
    5. Oleg Itskhoki, 2021. "The Story of the Real Exchange Rate," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 423-455, August.
    6. Abbott, Philip & Bentzen, Jeanet & Huong, Thi Lan & Tarp, Finn, 2007. "A Critical Review of Studies on the Social and Economic Impacts of Vietnam’s International Economic Integration," MPRA Paper 29789, University Library of Munich, Germany.
    7. Gordon Menzies & David Vines, 2008. "The Transfer Problem and Real Exchange Rate Overshooting in Financial Crises: The Role of the Debt Servicing Multiplier," Review of International Economics, Wiley Blackwell, vol. 16(4), pages 709-727, September.
    8. McDonald, Scott & Robinson, Sherman & Thierfelder, Karen, 2008. "Asian Growth and Trade Poles: India, China, and East and Southeast Asia," World Development, Elsevier, vol. 36(2), pages 210-234, February.
    9. Lewis, Jeffrey D. & Robinson, Sherman & Wang, Zhi, 1995. "Beyond the Uruguay Round: The implications of an Asian free trade area," China Economic Review, Elsevier, vol. 6(1), pages 35-90.
    10. Jean-Michel Courtault & Riccardo Magnani, 2014. "How much can European governments squeeze out of their taxpayers?," Economics Bulletin, AccessEcon, vol. 34(3), pages 1945-1960.
    11. Baele, Lieven & Bekaert, Geert & Cho, Seonghoon & Inghelbrecht, Koen & Moreno, Antonio, 2015. "Macroeconomic regimes," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 51-71.
    12. Rod Tyers & Aaron Walker, 2016. "Quantifying Australia's ‘Three-Speed’ Boom," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(1), pages 20-43, March.
    13. Scott McDonald & Sherman Robinson & Karen Thierfelder, 2007. "Globe: A SAM Based Global CGE Model using GTAP Data," Departmental Working Papers 14, United States Naval Academy Department of Economics.
    14. Zhang, Chengsi & Dang, Chao, 2018. "Is monetary policy forward-looking in China?," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 4-14.
    15. Kutlu, Levent, 2010. "Battese-coelli estimator with endogenous regressors," Economics Letters, Elsevier, vol. 109(2), pages 79-81, November.
    16. Sandra Polaski et al, 2008. "Policy dilemmas in India: The Impact of changes in agricultural prices on rural and urban poverty," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2008-012, Indira Gandhi Institute of Development Research, Mumbai, India.
    17. Park, Cheolbeom & Park, Sookyung, 2013. "Exchange rate predictability and a monetary model with time-varying cointegration coefficients," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 394-410.
    18. Zhang, Jian & Fung, Hung-Gay, 2006. "Winners and losers: Assessing the impact of Chinese Yuan appreciation," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 995-1009, December.
    19. Méjean, Isabelle, 2008. "Can firms' location decisions counteract the Balassa-Samuelson effect?," Journal of International Economics, Elsevier, vol. 76(2), pages 139-154, December.
    20. Dennis Wesselbaum, 2022. "Cheap Talk in a New Keynesian Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(3), pages 661-691, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:macfem:v:5:y:2012:i:2:p:161-176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REME20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.