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

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Citations

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Cited by:
  1. Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, Springer, vol. 45(4), pages 299-316, November.
  2. Röthig, Andreas & Chiarella, Carl, 2006. "Investigating nonlinear speculation in cattle, corn, and hog futures markets using logistic smooth transition regression models," Darmstadt Discussion Papers in Economics 36774, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  3. Couharde, Cécile & Sallenave, Audrey, 2013. "How do currency misalignments’ threshold affect economic growth?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 36(C), pages 106-120.
  4. Foster, Vivien & Yepes, Tito, 2006. "Is cost recovery a feasible objective for water and electricity ? The Latin American experience," Policy Research Working Paper Series 3943, The World Bank.

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