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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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