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Current equilibrium exchange rate: methodology and estimations for Latin American countries

Author

Listed:
  • Luiz Carlos Bresser-Pereira
  • Nelson Marconi
  • Tiago Porto
  • Eliane Araujo
  • Rafael Leao

Abstract

This paper proposes a methodology for the estimation of the current accountequilibrium exchange rate – the exchange rate that guarantees the intertemporal currentaccount equilibrium for a country. Moreover, the methodology is tested throughoutappropriate econometric technics (VECM Models) for Argentina, Brazil, Chile, andColombia, using quarterly data from around 2000 (according to data availability for eachcountry) to 2020. The model includes both long-term structural variables such as terms oftrade, goods and service trade as percentage of GDP and GDP per capita as well short termpolicy variables such as interest rate differential and EMBI plus. Apart from proposing aninnovative methodology for estimating the current account equilibrium exchange rate, thepaper brings important insights in terms of chronicle and cyclical appreciation (depreciation)of the exchange rate in LA countries. In addition, it shows high correlation between theexchange rate negative (positive) misalignments and the current account deficits (surpluses)in the countries analyzed. JEL Classification: F30; F31; F4.

Suggested Citation

  • Luiz Carlos Bresser-Pereira & Nelson Marconi & Tiago Porto & Eliane Araujo & Rafael Leao, 2022. "Current equilibrium exchange rate: methodology and estimations for Latin American countries," Brazilian Journal of Political Economy, Center of Political Economy, vol. 42(4), pages 809-834.
    • Handle: RePEc:ekm:repojs:v:42:y:2022:i:4:p:809-834:id:2363
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    More about this item

    Keywords

    Equilibrium exchange rate; current account; new developmentalism; VEC Model;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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