Choosing among rival poverty rates : some tests for Latin America

Poverty rates are now widely available, but are they reliable? Wide variations in estimated poverty rates for the same poverty line, year and country reflect an underlying reality: there is no widely accepted procedure for estimating national poverty rates. This paper proposes a simple, ex post procedure for selecting poverty rates that have certain desirable properties. Absolute poverty measures, estimated uniformly across countries, should be correlated with nonmonetary indicators that reflect the consequences of physical deprivation (e.g., malnutrition, birth rates, school attendance). A series of non-nested hypotheses tests are used to choose among competing poverty and income measures. This method is applied to screen the 66 alternate poverty measures computed by Székeley, Lustig et al. (2000) for 17 Latin countries. These tests identify 10-15 poverty measures that meet the standards set forth for useful poverty measures. This final group of poverty measures is then ranked using various performance criteria.

Inequality and Poverty under Latin America's New Left Regimes

Inequality and poverty fell sharply in many Latin American countries during a decade in which voters in ten countries chose left-leaning leaders. Are these developments related? Using data for 18 Latin American countries, this paper presents econometric evidence that social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes' efforts were more effective. Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to "normal" levels (as estimated by fixed effects). Conversely, inequality and poverty in Brazil and Chile fell to historic lows. Second, overall terms of trade shocks were more favorable to Argentina and Venezuela, so part of the drop in inequality can be attributed to commodity price booms.inequality, poverty, social policy, new left, Latin America

The costs and benefits of fixed dollar exchange rates in Latin America

Chronic inflation and the importance of the exchange rate as a nominal anchor for the domestic price level have led some Latin American countries to consider returning to a fixed dollar exchange rate. John Welch and Darryl McLeod examine the costs and benefits of real exchange rate movements and their relevance for the credibility of inflation policies in countries now contemplating free trade agreements with the United States. ; The authors discuss the experiences of several Latin American countries and describe the problem their policy-makers face when deciding to follow either fixed or flexible exchange rate rules. Fixed exchange rates that are credible can decrease inflation rates, but only at the cost of policy flexibility in the face of adverse changes in the terms of trade or foreign interest rates. The current relative stability of international markets has led some Latin American countries to complement their stabilization and reform policies with fixed exchange rates.Foreign exchange - Law and legislation ; Latin America

Is foreign-currency indexed debt a commitment technology? Some evidence from Brazil and Mexico

We examine the effects of foreign currency-indexed debt upon inflationary expectations in Brazil and Mexico. Conjecturing that markets will view increasing overhangs of foreign currency-indexed debt as a commitment technology that fiscally punishes devaluation, we test whether increasing such overhangs will attenuate the effect of monetary growth upon inflationary expectations. We find some econometric confirmation of these conjectures in both the Brazilian and Mexican cases. Finding that the results are consistent with the notion that increasing the share of dollar indexed debt may also permit some temporary monetary independence even under pegged exchange rate regimes, we present some evidence of independent policy behavior during periods when are model results would suggest it. ; Economic Research Working Paper 9913Money ; Brazil ; Debt ; Financial crises - Latin America ; Indexation (Economics) ; Inflation (Finance) ; Mexico

Currency competition and inflation convergence

All agree partial dollarization or currency substitution is a legacy of past inflation and exchange rate instability. Some argue partial dollarization contributes to exchange rate instability. However, if Central Banks respond to dollarization by lowering money growth and maximizing seigniorage revenue, inflation falls and converges on dollar inflation rates. We present a simple model of currency competition with open capital markets to illustrate these points. Empirical tests for Latin America and about twenty other countries suggest that dollarization is both a legacy of past inflation and a constraint on future inflation. Dollarization may complicate monetary policy and prudential regulation, but one silver lining is that currency competition appears to have accelerated the sharp fall in and convergence of Latin inflation rates over the past decade.Dollarization

Apparel exports and education: how developing nations encourage women's schooling

World Trade Organization ; Clothing trade ; Textile industry

The openness-inflation puzzle revisited

Dynamic panel estimates show the negative relation between trade openness and inflation found by Romer (1993) but questioned by Terra (1998) became more robust in the 1990s, both among high income OECD and developing countries. Also during the 1990s, openness was associated with less variable inflation and had a stronger disinflation effect in economies with floating exchange rates.Trade

Capital account liberalization and disinflation in the 1990s

As a way of addressing arguments in the literature (Rodrik, 1998) that the act of capital account liberalization leads to inflation, we present a simple theoretical model in which capital account liberalization raises the absolute value of the elasticity of money demand because agents have broader money holding options than under a closed capital account. The central bank maximizes seigniorage, balancing the benefits of higher inflation against potential losses of foreign currency reserves. The optimum seigniorage-maximizing rate of inflation falls when capital controls are loosened, as a result of the impact of liberalization on the elasticity of money demand. In a series of OLS and instrumental variables models that are heavily influenced by the work of Romer (1993) on current account openness and Grilli and Milesi-Ferretti (1995) on capital account openness, we test the impact of the act capital account liberalization (and many other factors) on inflation and find results that are consistent with our simple theoretical model and that are inconsistent with the recent work of Rodrik (1998). ; Economic Research Working Paper 0104

Exchange rate uncertainty and economic growth in Latin America

Latin America

Comentario a Tim Josling

Tim Josling presenta eficazmente una “primera ronda” de investigación sobre la agricultura bajo el TLC en un consenso cuidadosamente optimista. Éste es un logro en sí, dado lo poco que se sabe acerca de los objetivos de los negociadores y las diversas metodologías de estos estudios. Un importante punto de acuerdo es que la integración agrícola regional ofrece grandes ganancias potenciales para Estados Unidos y para México, quizá las mayores de cualquier grupo industrial. Estados Unidos y Canadá exportarán más grano y productos ganaderos, mientras que México producirá más frutas y legumbres. Esta expansión es particularmente importante para México, ya que estas cosechas emplean por lo menos el doble de mano de obra por acre que las cosechas de grano. El segundo punto de consenso es que, pese a las grandes ganancias potenciales, existen riesgos importantes en la transición. La mejor manera de evitar estos riesgos, se argumenta, es proceder despacio, con reducción en fases de las barreras comerciales, tanto en cosechas de granos como hortícolas.