Trade and Competitiveness in Argentina, Brazil and Chile Not as Easy as A‐B‐C: The impact of exchange rate regimes on real exchange rates in South America, 1990‐2002

This chapter explores the relationship between exchange rate regimes and real exchange rates, as defined by the relative price of non‐tradables to tradables, in Argentina, Brazil, Chile (A‐B‐C) and Mexico from 1990 to 2002. According to the literature, the real exchange rate is determined in the long run by the Balassa‐Samuelson effect, but in the medium run also by government expenditure and terms of trade. Here another determinant is explored, which is exchange rate regimes. Fixed exchange rate regimes distorted relative prices of tradables to nontradables. Moreover, fixed regimes attract portfolio inflows that increase demand and prices for non‐tradables. Econometric tests confirm that ...