Contractionary depreciations in Latin America during the 2000s

Vol. 41 No. 4 (2021)

Out-Dez/2021
Published November 11, 2021
PDF-English
PDF-English

How to Cite

Montané, Martín, Emiliano Libman, and Guido Zack. 2021. “Contractionary Depreciations in Latin America During the 2000s”. Brazilian Journal of Political Economy 41 (4):723-44. https://doi.org/10.1590/0101-31572021-3196.

Contractionary depreciations in Latin America during the 2000s

Martín Montané
Universidad Torcuato Di Tella (UTDT), Buenos Aires-Argentina.
Emiliano Libman
Universidad Nacional de San Martín (UNSAM), San Martín-Argentina.
Guido Zack
Universidad de Buenos Aires y Universidad Nacional de San Martín, Buenos Aires/Argentina.
Brazilian Journal of Political Economy, Vol. 41 No. 4 (2021), Out-Dez/2021, Pages 723-744

Abstract

This paper explores the effects of currency depreciations on output for the main
Latin 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 two
decades and we find that depreciations have short-run contractionary effects in Brazil and
Mexico. We illustrate some of the policy implications of that finding by building a simple
model, and we show that contractionary effects of depreciations may have destabilizing
effects 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