Uruguay: Selected Issues

Publication Date:

January 31, 2018

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file


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.


Country Report No. 2018/024



Publication Date:

January 31, 2018



Stock No:




Please address any questions about this title to publications@imf.org