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Contractionary depreciations in Latin America during the 2000s

Author

Listed:
  • Martín Montané
  • Emiliano Libman
  • Guido Zack

Abstract

This paper explores the effects of currency depreciations on output for the mainLatin American countries that have been using Inflation Targeting for almost two decades.We construct VAR models for Brazil, Chile, Colombia, Mexico and Peru for the last twodecades and we find that depreciations have short-run contractionary effects in Brazil andMexico. We illustrate some of the policy implications of that finding by building a simplemodel, and we show that contractionary effects of depreciations may have destabilizingeffects when monetary policy is conducted using a standard Taylor Rule. JEL Classification: E31; E52; E58.

Suggested Citation

  • Martín Montané & Emiliano Libman & Guido Zack, 2021. "Contractionary depreciations in Latin America during the 2000s," Brazilian Journal of Political Economy, Center of Political Economy, vol. 41(4), pages 723-744.
    • Handle: RePEc:ekm:repojs:v:41:y:2021:i:4:p:723-744:id:2260
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/2260/2245
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    More about this item

    Keywords

    Inflation targeting; vector autoregressions; contractionary effects of devaluations; monetary policy rules;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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