Three essays on real and nominal macroeconomic variables in Latin America

Abstract

The performance of Latin America in the last decades with its episodes of rapid growth in some economies and stagnation in other countries of the region, exemplify the importance of empirical applications that verify the hypotheses related to three relevant macroeconomic variables: real output per capital, real Exchange rate and unemployment rate. These empirical studies can provide a deeper understanding of the determinants of long-run economic growth, which will support the fight against poverty and inequality in the region. This doctoral thesis is divided into three chapters: Chapter 1. Real Convergence: Empirical Evidence for Latin America. This investigation analyzes the real convergence of 17 Latin American countries to the U.S. economy for the 1950-2008 period. We use a time series approach to test stochastic and â convergence. The tests of stochastic convergence consider the possibility of one or two structural changes. In addition, we estimate the order of fractional integration of real GDP per capita differences. Our results show that when endogenous structural changes are included in the model, several Latin American countries exhibit stochastic convergence. Nevertheless, we find real convergence only for three Latin American countries: Chile, Costa Rica and Trinidad & Tobago because they present stochastic and â convergence as well. Chapter 2. Mean Reversion in Real Exchange Rates: Empirical Evidence for Latin America. This investigation examines the mean reverting or unit root behavior of real exchange rate (RER) time series computed between the U.S. and 19 Latin American countries for the 1951-2007 period. The time series tests we employ to analyze the stochastic properties of RER consider the possibility of one or two structural changes in order to account for exchange rate crises, policy regime changes and high inflation periods experienced by Latin American economies. In addition, we estimate the order of fractional integration of RER. Our results show that when endogenous structural changes are included in the model, the RER of several Latin American countries exhibit mean reversion. Furthermore, we find evidence of relative Law of One Price (LOP) for Argentina, Brazil, Chile, Colombia, Dominican Republic, Peru, Uruguay, Nicaragua and Paraguay. Finally, when we estimate the order of fractional integration, we conclude that Nicaragua exhibits the highest speed of mean reversion of RER. Chapter 3. Unemployment Hysteresis: Empirical Evidence for Latin America. This investigation analyzes the unemployment dynamics of 18 Latin American countries for the last four decades. We use a time series approach to test the mean reversion of unemployment rates and its approximation to a natural rate of unemployment (NRU). The tests of mean reversion of unemployment rates consider the possibility of one or two structural changes to account for the occurrence of significant macroeconomic changes experienced by Latin American economies. In addition, we estimate the order of fractional integration of unemployment rates to assess the degree of persistence of unemployment rates in the region. Our results show that when endogenous structural changes are included in the model, in general we find evidence of mean reversion of unemployment rates for the Latin American countries under study. Therefore, our findings support the structuralist hypothesis. Moreover, we find evidence of approximation of mean reverting unemployment rates to a NRU for three Latin American countries: Chile, Costa Rica and Guatemala. Finally, when we estimate the order of fractional integration, our results in general support the hysteresis hypothesis, reinforcing the importance of including structural breaks to characterize the instability of the economies.