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Modelling Real Exchange Rate Effects on Output Performance in Latin America

  • P Mejía-Reyes
  • D R Osborn
  • M Sensier

This paper 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 business cycle through past growth rates, with effectively symmetric effects of real exchange rate changes. Overall, our results are in accord with other recent literature that depreciations have negative effects for growth.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr35.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 35.

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Length: 49 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:man:cgbcrp:35
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
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  1. Jose De Gregorio, 1991. "The Effects of Inflationon Economic Growth; Lessons From Latin America," IMF Working Papers 91/95, International Monetary Fund.
  2. Pierre-Richard Agénor, 1991. "Output, devaluation and the real exchange rate in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 18-41, March.
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  5. M Sensier & D R Osborn & N Öcal, 2002. "Asymmetric Interest Rate Effects for the UK Real Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 10, Economics, The Univeristy of Manchester.
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  9. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 287-311, November.
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  11. Steven B. Kamin & John H. Rogers, 1997. "Output and the real exchange rate in developing countries: an application to Mexico," International Finance Discussion Papers 580, Board of Governors of the Federal Reserve System (U.S.).
  12. Sweder van Wijnbergen, 1986. "Exchange Rate Management and Stabilization Policies in Developing Countries," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 17-42 National Bureau of Economic Research, Inc.
  13. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
  14. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
  15. John James Mora, 1997. "No linealidades y ciclos asimétricos en el PIB colombiano," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 12(2), pages 183-195.
  16. Skalin, Joakim & Terasvirta, Timo, 1999. "Another Look at Swedish Business Cycles, 1861-1988," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 359-78, July-Aug..
  17. Simon M. Potter, 1993. "A Nonlinear Approach to U.S. GNP," UCLA Economics Working Papers 693, UCLA Department of Economics.
  18. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," IDB Publications (Working Papers) 5718, Inter-American Development Bank.
  19. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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  24. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
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  27. J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
  28. Christos Papazoglou, 1999. "Exchange Rate Policy and Output Growth: The Experience of the Transition Economies of Central and Eastern Europe," Post-Communist Economies, Taylor & Francis Journals, vol. 11(3), pages 319-336.
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