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The Relative Price of Nontraded Goods, Absorption, and Exchange Rate Policy in Chile, 1974-82

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  • Guillermo R. Le Fort

    (International Monetary Fund)

Abstract

The empirical effects of exchange rate policy and changes in absorption on the relative price of nontraded goods in Chile are examined. Three alternative theories of relative-price determination in a developing economy are tested: purchasing power parity, sector-specific factors, and sticky wages. The estimation results, obtained using both classical and Bayesian methods, favor the sticky-wages theory. Thus, as long as public sector wages are not fully indexed, a devaluation will have a lasting effect on the relative price of nontraded goods.

Suggested Citation

  • Guillermo R. Le Fort, 1988. "The Relative Price of Nontraded Goods, Absorption, and Exchange Rate Policy in Chile, 1974-82," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 336-370, June.
    • Handle: RePEc:pal:imfstp:v:35:y:1988:i:2:p:336-370
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    Cited by:

    1. Roberto Alvarez & J. Rodrigo Fuentes, 2006. "Trade Reforms and Manufacturing Industry in Chile," Palgrave Macmillan Books, in: Patricio A. Aroca & Geoffrey J. D. Hewings (ed.), Structure and Structural Change in the Chilean Economy, chapter 4, pages 71-94, Palgrave Macmillan.

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