Short-run effects of devaluation: a disaggregated analysis of Latin American exports

Abstract

Conventional models examining the relationship between devaluation and exports are based on exchange rate pass through. These suggest that after devaluation exports become cheaper, relative to other exports, and the growing export market is posited to stimulate the economy. If devaluation has a differential effect across commodities, countries can expect different results depending on their portfolios. Therefore, any accurate analysis of the effects of devaluation must take into account the components of a country's export portfolio. The pooled time series estimation for Latin American countries reveals a negative short-run relationship between real devaluation and export growth for most exports at a disaggregated level. The results of this study are far reaching as they suggest that more targeted policies are better suited to stimulate exports.