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Unemployment and Real Exchange Rate Dynamics in Latin American Economies

Author

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  • Raimundo Soto

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

Edwards and Savastano (2000) survey on the equilibrium real exchange rate (RER) literature identify two important limitations: the lack of explicit derivation of flow and stock equilibrium variables as determinants of the equilibrium RER and the failure to allow for unemployment. This paper develops a general equilibrium model that includes both elements, as well as other traditional determinants of the RER such as productivity, terms of trade and government policies. The model is tested against the experience of ten Latin American economies in the 1970-2004 period. From an econometric point of view the model is consistent with the evidence, providing an estimate of the RER misalignment. When evaluating the contribution of labor market distortions to changes in the equilibrium RER, they appear to be less significant than changes in productivity or government policies.

Suggested Citation

  • Raimundo Soto, 2008. "Unemployment and Real Exchange Rate Dynamics in Latin American Economies," Documentos de Trabajo 337, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:337
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    File URL: http://www.economia.uc.cl/docs/dt_337.pdf
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    Cited by:

    1. Garcia-Jimenez, Carlos I. & Mishra, Ashok K., 2010. "The Effects of Public Debt on Labor Demand in the United States," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56361, Southern Agricultural Economics Association.

    More about this item

    Keywords

    Real exchange rate; unemployment; general equilibrium; misalignmen;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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