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The Short-Run Relation Between Inflation and Growth in Latin America

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  • Sebastian Edwards

Abstract

This paper investigates the relationship between monetary policy and growth in five Latin American countries (Brazil, Chile, Colombia, Mexico and Peru).The analysis focuses on the effects of expected and unexpected monetary growth on output, and explicitly incorporates the relationship between fiscal deficits and money creation in these countries. Open economy considerations are explicitly introduced into the analysis.Contrary to previous findings (Hanson, 1980), the results obtained in this paper indicate that these countries exhibit very different behavior with respect to the relationship between unexpected money and growth: While for Chile and Brazil no evidence was found of a positive relation between monetary policy (expected or unexpected) and growth, for Colombia, Mexico and Peru a positive relationship was found between unexpected monetary policy and growth.

Suggested Citation

  • Sebastian Edwards, 1983. "The Short-Run Relation Between Inflation and Growth in Latin America," NBER Working Papers 1065, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1065
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    References listed on IDEAS

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    1. Michael R. Darby, 1980. "Unanticipated or Actual Changes in Aggregate Demand Variables: A Cross-Country Analysis," NBER Working Papers 0589, National Bureau of Economic Research, Inc.
    2. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    3. Mario I. Blejer & Roque B. Fernandez, 1980. "The Effects of Unanticipated Money Growth on Prices and on Output and Its Composition in a Fixed-Exchange-Rate Open Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 82-95, February.
    4. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    5. Leiderman, Leonardo, 1979. "Expectations and Output-Inflation Tradeoffs in a Fixed-Exchange-Rate Economy," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1285-1306, December.
    6. Baer, Werner & Beckerman, Paul, 1974. "Indexing in Brazil," World Development, Elsevier, vol. 2(10-12), pages 35-47.
    7. Bijan B. Aghevli & Mohsin S. Khan, 1978. "Government Deficits and the Inflationary Process in Developing Countries (Déficits publics et processus inflationniste dans les pays en développement) (Los déficit públicos y el proceso inflaciona," IMF Staff Papers, Palgrave Macmillan, vol. 25(3), pages 383-416, September.
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    Cited by:

    1. Sebastian Edwards, 1986. "Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 233-266, National Bureau of Economic Research, Inc.
    2. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    3. Godwin Nwaobi, 2004. "Money and output interaction in Nigeria: an econometric investigation using multivariate cointegration technique," Economics Bulletin, AccessEcon, vol. 3(30), pages 1-10.
    4. Sebastian Edwards, 1985. "Commodity Export Boom and the Real Exchange Rate: The Money-Inflation Link," NBER Working Papers 1741, National Bureau of Economic Research, Inc.
    5. Dr. Godwin Chukwudum Nwaobi, 2005. "Rational Expectations And Monetary Theory: An Investigative Paper[1960 - 1989]," Macroeconomics 0501001, University Library of Munich, Germany.
    6. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    7. Dr.Godwin Chukwudum Nwaobi, 2004. "Money And Output Interraction In Nigeria," Macroeconomics 0405012, University Library of Munich, Germany.
    8. Glick, Reuven & Kretzmer, Peter & Wihlborg, Clas, 1995. "Real exchange rate effects of monetary disturbances under different degrees of exchange rate flexibility: An empirical analysis," Journal of International Economics, Elsevier, vol. 38(3-4), pages 249-273, May.
    9. Jesus Otero, 2001. "Coffee export booms and monetary disequilibrium: some evidence for Colombia," Applied Economics, Taylor & Francis Journals, vol. 33(2), pages 267-276.
    10. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-508, August.
    11. repec:ebl:ecbull:v:3:y:2004:i:30:p:1-10 is not listed on IDEAS
    12. Fiona Atkins, 2000. "Revisiting the exchange rate debate: the Jamaican experience," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(1), pages 121-131.
    13. Ghura, Dhaneshwar, 1995. "Effects of macroeconomic policies on income growth, inflation, and output growth in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 17(4), pages 367-395, August.

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