The impact of real exchange rate depreciation on income distribution: Europe and Latin America, 1990-2020

Abstract

Given the current monetary framework focused on keeping inflation low and stable, together with a limited fiscal policy, it has not encouraged economic growth, which is why it has been considered imminent to apply additional economic policies. The aim of this article is to evaluate the effect of a devaluation of the exchange rate on the average remunerations corresponding to five representative countries of Latin America (Argentina, Brazil, Chile, Colombia and Mexico) and the European Union (Spain, Greece, Ireland, Italy and Portugal), respectively. The main findings show that: i) the depreciation of the real exchange rate has a positive effect on wages, only in the case of Latin America; ii) the economic opening seems to generate contractive effects on labor ncome; iii) productivity is a determining factor of remunerations.