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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Sources of Economic Fluctuations in Latin America and Implications for Choice of Exchange Rate Regimes
Shaghil Ahmed
1999-656  (December 1999, latest version July 2002)

Abstract:  This paper studies the sources of economic fluctuations and their implications for exchange rate regime choice in key Latin American countries. In general, external shocks play a limited role in driving output fluctuations in these countries; this absence of common business cycles undermines the case for fixed exchange rates. On the other hand, although there is some evidence that real exchange rates depreciate in response to adverse external shocks, this depreciation, in turn, tends to contract output in the short run. This suggests that exchange rate rigidity may not be as costly for these economies as conventional economic theory predicts.

Full paper, latest version (402 KB PDF)
Original version (225 KB PDF)

Keywords
economic fluctuations, exchange rate regimes, Latin America, dollarization

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