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Unemployment and Real Exchange Rate Dynamics in Latin American Economies

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Author Info
Raimundo Soto () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

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Abstract

Edwards and Savastano (2000) survey on the equilibrium real exchange rate (RER) literature identify two important limitations: the lack of explicit derivation of flow and stock equilibrium variables as determinants of the equilibrium RER and the failure to allow for unemployment. This paper develops a general equilibrium model that includes both elements, as well as other traditional determinants of the RER such as productivity, terms of trade and government policies. The model is tested against the experience of ten Latin American economies in the 1970-2004 period. From an econometric point of view the model is consistent with the evidence, providing an estimate of the RER misalignment. When evaluating the contribution of labor market distortions to changes in the equilibrium RER, they appear to be less significant than changes in productivity or government policies.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 337.

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Date of creation: 2008
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Handle: RePEc:ioe:doctra:337

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Related research
Keywords: Real exchange rate unemployment general equilibrium misalignmen

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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  8. Alexius, Annika, 2005. "Productivity shocks and real exchange rates," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 555-566, April. [Downloadable!] (restricted)
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