Modelling real exchange rate effects on output performance in Latin America

Pablo Mejía-Reyes, Denise R. Osborn, Marianne Sensier

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Abstract

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. © 2010 Taylor & Francis.
Original languageEnglish
Pages (from-to)2491-2503
Number of pages12
JournalApplied Economics
Volume42
Issue number19
DOIs
Publication statusPublished - Aug 2010

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