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Modelling real exchange rate effects on output performance in Latin America


  • Pablo Mejia-Reyes
  • Denise Osborn
  • Marianne Sensier


This article 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 past growth rates, with effectively symmetric effects of real exchange rate changes. Although our results are in accord with other recent literature in that depreciations may have negative effects for growth, the asymmetries we uncover indicate that these effects depend on the conditioning state.

Suggested Citation

  • Pablo Mejia-Reyes & Denise Osborn & Marianne Sensier, 2010. "Modelling real exchange rate effects on output performance in Latin America," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2491-2503.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:19:p:2491-2503
    DOI: 10.1080/00036840701858117

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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. An, Lian & Kim, Gil & Ren, Xiaomei, 2014. "Is devaluation expansionary or contractionary: Evidence based on vector autoregression with sign restrictions," Journal of Asian Economics, Elsevier, vol. 34(C), pages 27-41.
    3. Couharde, Cécile & Sallenave, Audrey, 2013. "How do currency misalignments’ threshold affect economic growth?," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 106-120.
    4. Andreas Röthig & Carl Chiarella, 2007. "Investigating nonlinear speculation in cattle, corn, and hog futures markets using logistic smooth transition regression models," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(8), pages 719-737, August.
    5. BAHMANI-OSKOOEE, Mohsen & Mohammadian, Amirhossein, 2017. "On the Relation between Domestic Output and Exchange Rate in 68 Countries: An Asymmetry Analysis," MPRA Paper 82939, University Library of Munich, Germany, revised 05 Apr 2017.
    6. Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, vol. 45(4), pages 299-316, November.
    7. Hsing Yu, 2012. "Impacts of the Exchange Rate and the Global Interest Rate on Real Output for Ten Selected Latin American Countries," Global Economy Journal, De Gruyter, vol. 12(1), pages 1-18, March.
    8. Phornchanok Cumperayot & Roy Kouwenberg, 2016. "Currency Wars: Who Gains from the Battle?," PIER Discussion Papers 18., Puey Ungphakorn Institute for Economic Research, revised Feb 2016.
    9. Gil Kim & Lian An & Yoonbai Kim, 2015. "Exchange Rate, Capital Flow and Output: Developed versus Developing Economies," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(2), pages 195-207, June.

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