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Exchange market pressure, commodity prices, and contagion in Latin America

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  • Scott W. Hegerty

Abstract

Over the past two decades, Latin American currencies have faced not only pressure to devalue but also periods of uncomfortable appreciation. Domestic macroeconomic factors, as well as global events and contagion, might bear part of the responsibility. This study constructs a monthly index of exchange market pressure (EMP) for four Latin American countries before using vector autoregressive methods to test the influence of commodity prices, macroeconomic variables, and external factors on each country's index. While inflation is an important determinant of EMP, we conclude that Chile and Peru are more likely than Mexico and Brazil to face pressure when commodity prices fall. This supports the idea that these two countries have "commodity currencies" and that their exchange markets are most vulnerable to international contagion.

Suggested Citation

  • Scott W. Hegerty, 2014. "Exchange market pressure, commodity prices, and contagion in Latin America," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(1), pages 56-77, February.
  • Handle: RePEc:taf:jitecd:v:23:y:2014:i:1:p:56-77
    DOI: 10.1080/09638199.2012.679292
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    Cited by:

    1. Scott W. Hegerty, 2012. "How integrated are the exchange markets of the Baltic Sea Region? An examination of market pressure and its contagion," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 109-122, December.
    2. HEGERTY, Scott W., 2014. "Exchange Market Pressure And Regional Price Spillovers In Russia, Ukraine, And Belarus," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(2).
    3. Hegerty, Scott W., 2012. "Money market pressure in emerging economies: International contagion versus domestic determinants," Economic Systems, Elsevier, vol. 36(4), pages 506-521.
    4. Hegerty, Scott W., 2016. "Commodity-price volatility and macroeconomic spillovers: Evidence from nine emerging markets," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 23-37.
    5. Scott W. Hegerty, 2013. "Exchange market pressure, stock prices, and commodity prices in West Africa," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(6), pages 750-765, November.
    6. Scott W. Hegerty, 2015. "Commodity-Price Volatility, Exchange Market Pressure, and Macroeconomic Linkages: Evidence from Latin America," Bulletin of Applied Economics, Risk Market Journals, vol. 2(2), pages 11-21.

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