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Modelling Real Exchange Rate Effects on Output Performance in Latin America

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  • P Mejía-Reyes
  • D R Osborn
  • M Sensier

Abstract

This paper empirically analyses real per capita GDP growth for six Latin American countries (Argentina, Brazil, Chile, Columbia, Mexico, Venezuela) in terms of real exchange rate depreciations, inflation and US interest rates, focussing on the role of the real exchange rate. We find evidence of nonlinearity in this relationship, which we capture through a smooth transition regression model. With the exception of Mexico, nonlinearity in economic growth is associated with changes in the real exchange rate, with depreciations leading to different relationships compared with appreciations. Regimes for Mexico are associated with the business cycle through past growth rates, with effectively symmetric effects of real exchange rate changes. Overall, our results are in accord with other recent literature that depreciations have negative effects for growth.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr35.pdf
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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 35.

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Length: 49 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:man:cgbcrp:35

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Related research

Keywords: business cycles regimes; non-linear models; smooth transition models; Latin America; real exchange rate;

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Cited by:
  1. Muhammad, Shahbaz & Faridul, Islam & Naveed, Aamir, 2011. "Is devaluation contractionary? empirical evidence for Pakistan," MPRA Paper 32520, University Library of Munich, Germany, revised 01 Aug 2011.

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