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Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries

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  • Giannellis, Nikolaos
  • Koukouritakis, Minoas

Abstract

This paper tests the conjecture that inflation rate persistence in selected Latin American countries, namely Brazil, Mexico, Uruguay and Venezuela, is related with currency undervaluation. In this manner, we expect that the behaviour of inflation rates may be non linear reflecting the changing status of the exchange rate. By modelling an appropriate non linear model, we find no strong evidence in favour of the above commonly accepted view. However, our evidence shows that in periods of high depreciation of the home currency the domestic inflation rate was persistent, while in periods of slower depreciation, or relative stability, it was transitory.

Suggested Citation

  • Giannellis, Nikolaos & Koukouritakis, Minoas, 2013. "Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 202-218.
  • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:202-218
    DOI: 10.1016/j.iref.2012.07.013
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    Cited by:

    1. repec:mbr:jmonec:v:10:y:2015:i:2:p:45-69 is not listed on IDEAS
    2. Ghosh, Amit, 2014. "How do openness and exchange-rate regimes affect inflation?," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 190-202.
    3. Felipe Santos Tostes & Helder Ferreira De Mendonça, 2016. "Credibility On Pass-Through In Brazil," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42nd Brazilian Economics Meeting] 022, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    4. Hem Basnet & Subhash Sharma, 2015. "Exchange rate movements and policy coordination in Latin America," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 679-696, October.
    5. Walid Mensi & Shawkat Hammoude & Seong-Min Yoon, 2014. "Structural Breaks, Dynamic Correlations, Volatility Transmission, and Hedging Strategies for International Petroleum Prices and U.S. Dollar Exchange Rate," Working Papers 884, Economic Research Forum, revised Dec 2014.
    6. repec:spr:epolit:v:34:y:2017:i:3:d:10.1007_s40888-017-0076-0 is not listed on IDEAS
    7. Ghosh, Amit, 2014. "A comparison of exchange rate regime choice in emerging markets with advanced and low income nations for 1999–2011," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 358-370.
    8. Helder Mendonça & Felipe Tostes, 2015. "The Effect of Monetary and Fiscal Credibility on Exchange Rate Pass-Through in an Emerging Economy," Open Economies Review, Springer, vol. 26(4), pages 787-816, September.
    9. Yanli LI, Hongfeng PENG & Hongfeng PENG, 2013. "Inflation Persistence in Nine Latin American Countries: Panel SURKSS Test with a Fourier Function," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.
    10. repec:eee:riibaf:v:42:y:2017:i:c:p:1089-1095 is not listed on IDEAS
    11. Valadkhani, Abbas, 2014. "Switching impacts of the output gap on inflation: Evidence from Canada, the UK and the US," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 270-285.

    More about this item

    Keywords

    CHEER; Misalignment rate; Structural shifts; Non linear two-regime unit root test; Inflation persistence;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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