Abstract
This study investigates some of the common features of the exchange rate dynamics as an indicator of monetary policy coordination in selected Latin American countries—Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. The empirical results indicate that these countries have long term common trends and do share short term common cycles in their exchange rates. While the results demonstrate a comovement in trend components, all seven countries do not exhibit synchronous comovement in cyclical components. In this direction, we find two groups—a group of five countries (Brazil, Chile, Colombia, Mexico and Peru) that demonstrate a strong comovement and a group of two countries (Argentine and Venezuela) that show just an opposite movement than that of the former group. Our results do not suggest any qualitative differences in the trajectory of common trend and common cycles when considering for different sub-periods. Taking both trend and cyclical behaviors into account our analysis does support for monetary policy coordination between Brazil, Chile, Columbia, Mexico and Peru. Relinquishing exchange rate independence might be costly for Argentina and Venezuela.
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Notes
For details: Krueger (1983)
Engle and Issler (1993) claim that the F-Statistics yields superior results. We present the results of both χ 2 and F-test.
In graphs 1a,b and 2a, b, we show an illustration of trend and cyclical components of the five and the two countries separately to provide clear view in their trend and cyclical movements between the two groups.
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Basnet, H.C., Sharma, S.C. Exchange rate movements and policy coordination in Latin America. J Econ Finan 39, 679–696 (2015). https://doi.org/10.1007/s12197-013-9272-0
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DOI: https://doi.org/10.1007/s12197-013-9272-0