Structural Real Exchange Rate and Unemployment Interdependencies in Argentina

Based on a three-sector micro-founded model of a small open economy, this paper investigates the interdependences between the structural real exchange rate (defined as the relative prices tradable to non-tradable goods prices) and the unemployment rate with an application to Argentina. The empirical...

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Bibliographic Details
Main Authors: Pentecost, Eric J., Zarzosa Valdivia, Fernando
Format: Online
Language:eng
Published: Instituto de Economía y Finanzas. Facultad de Ciencias Económicas. Universidada Nacional de Córdoba. 2014
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Online Access:https://revistas.unc.edu.ar/index.php/REyE/article/view/14936
Description
Summary:Based on a three-sector micro-founded model of a small open economy, this paper investigates the interdependences between the structural real exchange rate (defined as the relative prices tradable to non-tradable goods prices) and the unemployment rate with an application to Argentina. The empirical results suggest a significant, negative relationship between the structural real exchange rate and the rate of unemployment, suggesting that an appreciating real exchange rate may lead to Dutch disease effects – which effectively contract the size of the manufacturing sector – and damage long-term growth and employment opportunities.