Exchange Rate Adjustment and Output in Selected Latin American Countries

This paper studies the effect of currency depreciation on the output level in four Latin American countries. An empirical model that includes monetary, fiscal and exchange rate variables is developed. Two versions of this model, one with real exchange rate and another with nominal exchange rate and the foreign to-domestic price ratio are estimated. The overall findings suggest that currency depreciations are usually contractionary to the economy. This effect comes from the nominal exchange rate and not the price level.