When are devaluations more contractionary? A quantile VAR estimation for Argentina

Gabriel Montes-Rojas () and Nicolás Bertholet ()

Chapter 8 in Monetary Policy Challenges in Latin America, 2023, pp 132-149 from Edward Elgar Publishing

Abstract: This chapter presents empirical evidence on the short- and medium-run contractionary effects of exchange rate shocks and currency devaluations for bimonetary (i.e., highly dollarized) countries, in particular, for Argentina for the period January 2004-December 2018. Using a vector autoregressive representation with quantile heterogeneity, it implements a multivariate model with four macroeconomic variables: exchange rate variations, inflation, economic activity, and nominal wage growth. The empirical results show a 30 percent price pass-through effect and a bimodal effect on output, with both positive and negative effects. Wages adjust less than prices with the consequent effect that real wages have a negative elasticity of 0.23 with respect to exchange rate shocks. Further analysis of the multivariate responses shows that the negative effect on output is associated with a decline in real wages: a 1 percent fall in real wages after a currency devaluation produces a 2.3 percent decline in output.

Keywords: Development Studies; Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: WHEN ARE DEVALUATIONS MORE CONTRACTIONARY? A QUANTILE VAR ESTIMATION FOR ARGENTINA (2022)
Working Paper: When are devaluations more contractionary? A Quantile VAR estimation for Argentina (2022)
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