Contractionary depreciations in Latin America during the 2000s

Martín Montané (), Emiliano Libman () and Guido Zack

Brazilian Journal of Political Economy, 2021, vol. 41, issue 4, 723-744

Abstract: This paper explores the effects of currency depreciations on output for the mainLatin American countries that have been using Inflation Targeting for almost two decades.We construct VAR models for Brazil, Chile, Colombia, Mexico and Peru for the last twodecades and we find that depreciations have short-run contractionary effects in Brazil andMexico. We illustrate some of the policy implications of that finding by building a simplemodel, and we show that contractionary effects of depreciations may have destabilizingeffects when monetary policy is conducted using a standard Taylor Rule. JEL Classification: E31; E52; E58.

Keywords: Inflation targeting; vector autoregressions; contractionary effects of devaluations; monetary policy rules (search for similar items in EconPapers)
Date: 2021
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