Unemployment and Real Exchange Rate Dynamics in Latin American Economies

Raimundo Soto

No 337, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: Edwards and Savastano (2000) survey on the equilibrium real exchange rate (RER) literature identify two important limitations: the lack of explicit derivation of flow and stock equilibrium variables as determinants of the equilibrium RER and the failure to allow for unemployment. This paper develops a general equilibrium model that includes both elements, as well as other traditional determinants of the RER such as productivity, terms of trade and government policies. The model is tested against the experience of ten Latin American economies in the 1970-2004 period. From an econometric point of view the model is consistent with the evidence, providing an estimate of the RER misalignment. When evaluating the contribution of labor market distortions to changes in the equilibrium RER, they appear to be less significant than changes in productivity or government policies.

Keywords: Real exchange rate; unemployment; general equilibrium; misalignmen (search for similar items in EconPapers)
JEL-codes: F31 F37 J01 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba and nep-opm
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:337

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