TY - BOOK ID - 85601416 TI - Uruguay : Selected Issues. PY - 2018 SN - 1484339851 1484339835 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Inflation (Finance) KW - Finance KW - Natural rate of unemployment KW - Foreign Exchange KW - Macroeconomics KW - Money and Monetary Policy KW - Public Finance KW - Production and Operations Management KW - Macroeconomics: Consumption KW - Saving KW - Wealth KW - Aggregate Factor Income Distribution KW - Human Capital KW - Skills KW - Occupational Choice KW - Labor Productivity KW - Monetary Systems KW - Standards KW - Regimes KW - Government and the Monetary System KW - Payment Systems KW - Currency KW - Foreign exchange KW - Public finance & taxation KW - Labour KW - income economics KW - Monetary economics KW - Exchange rates KW - Consumption KW - Income KW - Labor productivity KW - Private consumption KW - National accounts KW - Production KW - Economics KW - Monetary policy KW - Industrial productivity KW - Uruguay UR - https://www.unicat.be/uniCat?func=search&query=sysid:85601416 AB - This Selected Issues paper investigates the impact of exchange rate movements on private consumption in Uruguay. Uruguay is a highly dollarized economy, which makes the relationship between exchange rate movements and private consumption particularly complex. The paper shows that a large share of Uruguayan households is liquidity constrained, which allows the transitory real income shocks brought about by exchange rate pass-through to have a significant impact on consumption. Moreover, exchange rate pass-through is highly heterogenous, with relative prices of durables increasing (decreasing) following a depreciation (appreciation). This creates incentives for households to engage in intertemporal substitution where they buy durables when they are relatively cheaper. Data from Input–Output tables show that Uruguay produces a nontrivial amount of the tradable, durable goods it consumes, opening the door to contractionary depreciations. The results offer a potential explanation for the often noted ‘excess volatility of consumption’ in emerging markets for the case of Uruguay. ER -