Transcript Diapositiva 1 - uni

LIBERALIZATION, PRODUCTIVITY
AND AGGREGATE EXPENDITURE:
FUNDAMENTAL DETERMINANTS
OF REAL EQUILIBRIUM
EXCHANGE RATE
Juan Benítez
Gabriela Mordecki
XI Arnoldshain, Antwerp June 2013
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Presentation Outline
 Objectives and justification
 Theoretical framework
 RER Fundamentals
 Methodology
 Main results
 Final remarks
Objectives and justification
 Uruguay is a small open economy
 Between 2004 and 2010 the economy experienced a
process of strong economic growth and appreciation of
domestic currency
 6% GDP annual growth
 5.4% annual Global Real Exchange Rate (RER)
appreciation
 2.3% RER annual appreciation defined as TP/NTP
 8.9% appreciation of extra-regional RER
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2010.IV
2010.I
2009.III
2008.III
2007.IV
2007.I
2006.II
2005.III
2004.IV
Oil
2004.I
2003.II
2002.III
2001.IV
Commodities
2001.I
2000.II
1999.III
1998.IV
1998.I
550
1997.II
600
1996.III
1995.IV
1995.I
1994.II
1993.III
1992.IV
1992.I
• In the period there has been a strong increase
in commodity prices, particularly of food and oil
700
650
Food
500
450
400
350
300
250
200
150
100
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 Is the appreciation a long-term trend or
short-term phenomenon?
• Changes in fundamentals:
– Productivity
– Weight of extra-regional trade
– Aggregate expenditure
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Theoretical framework
Purchasing Power Parity
Balassa-Samuelson Hypothesis
• RER: relative price of tradables, which prices are
determined on the international market
compared to non-tradables, which prices are
determined by supply and demand in the
domestic economy:
RER = TP/NTP
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RER Fundamentals:
• Productivity differentials (-)
• Terms of trade (-)
• Capital inflow (-)
• Total consumption expenditure (-)
• Interest rate differential (-)
• Exports increase (-)
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Methodology
 Cointegration analysis through Johansen
method
 Variables included in the model:
•
logtcr: RER Log, estimated as the coefficient of TP and
NTP
• logpreleeuu: Log of the labor productivity gap between
Uruguay and USA.
• logxx: Log of the share of extra-regional good exports
over total good exports
• loggtot: Log of total expenditure
 All variables have a unit root
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Main results
Long run relationship:
logtcr  17,86  1,26log preleeuu 0,88log xx  0,76log gtot
• Interest rates and terms of trade were not
significant in the relationship
• The increase in productivity with respect to
trading partners contributing to RER
appreciation: Balassa-Samuelson effect
• Coherent with Aboal (2002) and Gianelli &
Mednik (2006)
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 The increase of extra-regional
appreciates domestic currency
export
flow
The increase in disposable income, with given world prices:
demand shock in the non-tradable sector
 According to Granger Test:
The extra-regional insertion precedes the appreciation
 The external integration intensifies in those goods
that the economy has comparative advantages:
primary products of agricultural origin, which
causes a fall in relative prices and consequently in
the price competitiveness of the economy.
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 Productivity ratios and extra-regional exports
are not significantly different from unity, so
productivity increases completely impact on
equilibrium RER appreciating currency
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Adjustment coefficients of the variables to imbalances
Δlogtcr
Δlogpreleeuu
Δlogxx
Error Correction Term
-0.055258
-0.159192
-0.320460
T statistic
[-2.20323]
[-3.45526]
[-3.85957]
 In the short-term relationship, after one
quarter RER adjusted 5.6%, productivity by
15.9% and 32.1% extra-regional exports.
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 The RER is set to its equilibrium value after 10
quarters, confirming that the RER, or its
components of the tradable and non-tradable
prices misalignment corrected more slowly
than productivity and much less speed and
extra-regional exports aggregate consumption
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Impulse responses
RER response to an impulse in Productivity
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RER response to an impulse in extra-regional
exports
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RER response to an impulse in total consumption
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130
120
1988Q1
1989Q1
1990Q1
1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
Evolution of the trend and observed RER
(Index, 1988.I = 100)
150
140
Observed RER
Equilibrium RER
110
100
90
80
70
60
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Final Remarks
 RER misalignments between observed and
its equilibrium level in the period of analysis
are more minor than what could be feared.
The variations observed in the RER in the
analysis period are due primarily to
movements in fundamentals
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 The evolution of the fundamentals during the
analysis support the expectation that the
phenomenon of domestic appreciation
continue
 It is likely that the prices of exported goods
continue to increase, intensifying the
displacement from non-tradable sector
resources towards the competitive sector
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RER fluctuations are less intense at the
end of the analysis period, when the
monetary authority ceased to have the
exchange rate as a nominal anchor
The RER imbalances regarding its
fundamentals have strong links with other
relevant variables for the economy as the
nominal exchange rate, the output gap
and inflation
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Thank you!!!
[email protected]
[email protected]
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