Long Run Determinants of Real Exchange Rates in Latin America

This paper investigates the long run behavior of real exchange rates in nineteen countries of Latin America over the period 1970 - 2006. Our data does not support the Purchasing Power Parity (PPP) hypothesis, implying that real shocks tend to have permanent effects on Latin America's real excha...

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Autores principales: Carrera, Jorge Eduardo, Restout, Romain
Formato: Articulo Documento de trabajo
Lenguaje:Inglés
Publicado: 2008
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Acceso en línea:http://sedici.unlp.edu.ar/handle/10915/128733
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id I19-R120-10915-128733
record_format dspace
institution Universidad Nacional de La Plata
institution_str I-19
repository_str R-120
collection SEDICI (UNLP)
language Inglés
topic Ciencias Económicas
Equilibrium real exchange rate
Panel cointegration
Panel unit roots
spellingShingle Ciencias Económicas
Equilibrium real exchange rate
Panel cointegration
Panel unit roots
Carrera, Jorge Eduardo
Restout, Romain
Long Run Determinants of Real Exchange Rates in Latin America
topic_facet Ciencias Económicas
Equilibrium real exchange rate
Panel cointegration
Panel unit roots
description This paper investigates the long run behavior of real exchange rates in nineteen countries of Latin America over the period 1970 - 2006. Our data does not support the Purchasing Power Parity (PPP) hypothesis, implying that real shocks tend to have permanent effects on Latin America's real exchange rates. By exploiting the advantage of non stationary panel econometrics, we are able to determinate factors that drive real exchanges rate in the long run : the Balassa-Samuelson effect, government spending, the terms of trade, the openness degree, foreign capital flows and the de facto nominal exchange regime. The latter effect has policy implications since we find that a fixed regime tends to appreciate the real exchange rate. This finding shows the non neutrality of exchange rate regime regarding its effects on real exchange rates. We also run estimations for country subgroups (South America versus Caribbean and Central America). Regional results highlight that several real exchange rates determinants are specific to one geographic zone. Finally, we compute equilibrium real exchange rate estimations. Two main results are derived from the investigation of misalignments, [i ] eight real exchange rates are quite close to their equilibrium level in 2006, and [ii ] our model shows that a part of currencies crises that arose in Latin America was preceded by a real exchange rate overvaluation.
format Articulo
Documento de trabajo
author Carrera, Jorge Eduardo
Restout, Romain
author_facet Carrera, Jorge Eduardo
Restout, Romain
author_sort Carrera, Jorge Eduardo
title Long Run Determinants of Real Exchange Rates in Latin America
title_short Long Run Determinants of Real Exchange Rates in Latin America
title_full Long Run Determinants of Real Exchange Rates in Latin America
title_fullStr Long Run Determinants of Real Exchange Rates in Latin America
title_full_unstemmed Long Run Determinants of Real Exchange Rates in Latin America
title_sort long run determinants of real exchange rates in latin america
publishDate 2008
url http://sedici.unlp.edu.ar/handle/10915/128733
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AT restoutromain longrundeterminantsofrealexchangeratesinlatinamerica
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