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Center for
Latin American
Federal Reserve Bank of Dallas
Research Department

About the Center for
Latin American Economics

The Federal Reserve Bank of Dallas established the Center
for Latin American Economics (CLAE) in 1992 to promote public
understanding of economic policy issues pertinent to Latin America. The center serves as a clearinghouse for information about the
region and pursues the exchange of ideas internationally. The CLAE
hosts scholars and central bankers from Latin America, organizes
conferences, and sends staff economists to present papers at academic and technical conferences. The staff writes and publishes
work in a wide variety of outlets, including refereed journals,
books, and publications of the Federal Reserve Bank of Dallas.
The center’s Research Abstracts publishes the abstracts of
as-yet-unpublished papers on Latin America by authors from
around the world. Abstracted papers include work by central
bankers, academics, and economists and other social scientists.
Research Abstracts enables CLAE members to become familiar with
the latest research on the region on a timelier basis than is possible by relying on academic journals.

2002 Annual Report
Center for Latin American Economics
Federal Reserve Bank of Dallas
Research Department

From the Director General


Research and Shorter Analysis


Other Activities


Publications, Papers, and Submissions



From the Director General
One of the most important recent economic phenomena in Latin America has been
low inflation, often resulting from disciplined central bank policy and more open markets.
Because inflation in Latin America was not high in 2002, even in crisis countries where it
once exploded regularly, other events have received more attention. These events, however,
are part of what makes the inflation story noteworthy. Freer capital movements and trade
play much more important roles than is widely recognized.
For Latin America, 2002 began with one crisis, ended with another, and endured
still other volatile episodes in the interim. Between mid-December 2001 and mid-January
2002, Argentina defaulted on its $155 billion in outstanding debt, announced three exchange
rate regimes, devalued its currency by 100 percent, and had five presidents. In February
2002, the bolivar was devalued about 40 percent. The year ended with Venezuela, stunned
by a political crisis and national strike, in economic free fall.
In the interim, Brazil had its own stresses, including a floating exchange rate that
depreciated 75 percent against the dollar between February and October and then appreciated 12 percent between October and the end of December. Due largely to presidential election jitters, the spread of Brazil’s Emerging Market Bond Index over U.S. Treasury rates
moved from about 800 basis points in January to almost 2,300 in October, and fell to about
1,400 by year’s end. Meanwhile, Mexico’s economy, increasingly tied to the U.S. manufacturing sector, trailed the United States’ slow growth rate but did grow in 2002.
The largest inflation-targeting countries, Brazil and Mexico, failed to achieve their targets. In trying to do so, however, Brazil engineered a 700-basis-point increase in its benchmark Selic interest rate between September and December. Mexico hewed hard to a target
that was not achieved only because of increases in government-administered utility prices.
December-over-December inflation rates in the inflation-targeting countries—which
also include Chile, Colombia, and Peru—were relatively low by the standards of the past
20 years, even though the pass-through from Brazil’s exchange rate depreciation contributed
to a 14 percent increase in that country.
Inflation and monetary expansionism were most strikingly low in the crisis countries, even though inflation was not really very low. Argentina seemed to have the greatest
potential for a burst of high inflation. Suddenly, the nation was papered with low-denomination debt instruments that circulated as currency. Argentina’s central government began
issuing the patacon, which looked and felt just like money. Argentina’s provinces did the
same. Santa Cruz province, home of former president Carlos Menem, issued debt instruments with a portrait of Eva Perón. Something, however, restrained inflation to 41 percent
between December 2001 and December 2002, compared with price increases substantially
higher than 1,000 percent between December 1989 and December 1990.
Similarly, despite Venezuela’s persistent efforts to reduce its debt without increasing taxes, the extremes of monetary expansionism that might have occurred a decade earlier never materialized. Price controls in Venezuela make comparisons difficult, but data on
monetary expansions give us some idea of what was happening. Over December 1990 to
December 1991, Venezuela raised its M1 monetary aggregate by 54 percent. In circumstances
at least as stressful between December 2001 and December 2002, monetization proceeded
rapidly by current Brazilian, Chilean, and Mexican standards. But at 18 percent, Venezuela’s
rate of monetary expansion was still only one-third what it was at the start of the 1990s.

Openness and Inflation
Different factors explain inflation—or its absence—in different countries. Much econometric evidence suggests that disinflation in the United States is largely due to technological
advances. By contrast, in Europe the main cause is a surplus workforce that holds down wages.


However, among the less well-understood relationships observed between inflation
and other variables, some of the most robust involve not only openness to capital flows and
trade but also the liberalization of capital and current accounts. CLAE staff economists offer
evidence that these factors are not only linked but that the liberalization leads and the reduction in inflation follows. This flies in the face of some analysts’ thinking, for reasons that are
understandable.1 For if a sudden, unsterilized rush of capital into a country signals out-ofcontrol monetary expansion, how could capital account liberalization be anti-inflationary?
However, the more open capital markets are, the easier it is for assets to go abroad when
domestic policies would erode their value at home. Currency substitution becomes easier.
As a result, the seigniorage-maximizing inflation rate falls. Reactions to this new calculus
could include tighter monetary policy—or at least monetary policy that is tighter than it
would otherwise be—or making the central bank autonomous.
Latin America has made big strides toward more openness to international capital
flows in the past 15 years. The persistent connection between capital account liberalization
and lower inflation suggests this relationship contributes significantly to the relatively low
inflation rates being seen in the region’s crisis countries. Moreover, even where official capital market liberalization is slow, technological advances may still be making capital more
footloose. As a famous paper by Stijn Claessens, Michael Dooley, and Andrew Warner concludes, all capital is now “hot” capital.2 Whether legal or illegal, looser capital movement
intensifies currency competition; the ability of capital to relocate can impose greater consequences when one government seeks to inflate its currency and another does not.

The Current Account and Inflation
Inflation also falls when the current account opens. In the late 1990s, some economic literature claimed the statistical regularity connecting current account openness and
inflation was not really very regular. According to some, the connection only reflected factors peculiar to heavily indebted countries during the great debt crises of the 1980s. This
detail was purportedly hidden in previous estimations that had sampled large numbers of
many different types of countries without correctly disaggregating them. Countries that were
not heavily indebted, according to these economists, did not show this relationship.
This interpretation was strongly debated even then, and it continues to be questioned. Research by CLAE staff economists shows that in the 1990s the inverse relation
between current account or trade openness and inflation—and even between trade liberalization and changes in inflation—applied to rich countries, poor countries, heavily indebted
countries, and not heavily indebted countries. This research also demonstrates that the negative relation between current account openness and inflation has strengthened overall since
the 1980s.
Agreement on a paradigm to explain the negative link between current account
openness and inflation is less widespread now than a decade ago. However, more trade
obviously means more opportunities for businesses to understate the value of their exports
and overstate the value of their imports. This offers more avenues for parking assets abroad
and creates opportunities for currency substitution and currency competition, just as capital
account openness does in other ways.
Some of Latin America’s largest countries still do not trade very much. But both
imports and total trade as shares of gross domestic product adjusted for purchasing power—
a common measure of trade openness—have risen markedly over the past 20 years. During 1986–90 and 1996–2000, trade as a share of this adjusted GDP rose by about one-fourth
in Argentina, about one-third in Brazil, and about one-half in Mexico. Chile’s and
Venezuela’s ratios did not increase but have always been high.
While capital and current account liberalization may not have been the only factors


lowering inflation in Latin America over the past decade or so, the robustness of the negative relations between them suggests they have been important in making the region’s inflation less newsworthy. Inflation targeting, freely fluctuating exchange rates, technological
advances in international finance, and industrial country disinflation have had an effect, and
the policies resulting in the capital and current account liberalizations may have been determined in conjunction with these factors. The link between liberalization and inflation, however, seems clear.

William C. Gruben
Director General
Center for Latin American Economics

See Rodrik, Dani (1998), “Who Needs Capital-Account Convertibility?” Harvard University
(Cambridge, Mass., February).
Claessens, Stijn, Michael P. Dooley, and Andrew Warner (1995), “Portfolio Capital Flows:
Hot or Cold?” World Bank Economic Review 9 (January): 153–74.



Research and Shorter Analysis
CLAE staff, visiting scholars, and their
coauthors conducted research on topics
related to current account and financial
crises, banking, capital flows and capital
account liberalization, undocumented immigration, the informal economy, and the interaction of political and economic pressures.
The work included CLAE and Research
Department working papers and articles submitted for publication in books and outside
journals. Center staff members also contributed to the Dallas Fed’s Economic and
Financial Review and Southwest Economy.

Exchange Rate, Current
Account, and Financial Crises
Some of the most extensive CLAE
research and analysis has been on
exchange rate, current account, and financial crises. Latin America offers some of the
world’s best-known examples of such
crises, but even the study of lower profile
Latin American financial events helps us
understand how these phenomena operate.
“Argentina’s Recovery and Excess Capital Shallowing of the 1990s” deals with one
of the more widely known financial crises.
Finn Kydland and Carlos Zarazaga test for
differences between how Argentina’s economy would have operated in the 1990s had
it followed standard free market neoclassical
assumptions and how it actually performed.
Kydland and Zarazaga find that
Argentina’s productivity growth rates during
the ’90s generated lower investment levels
than a neoclassical economy would have.
Because of this subpar development of
physical capital—the “capital shallowing”
of the paper’s title—a basis for sustained
expansion did not materialize. This appears
to be one reason Argentina could not
recover from the economic slump and
financial crisis that still plague the country.
In another modeling comparison with
ideally neoclassical behavior, Kydland and
Zarazaga examine the country’s protracted
crises of the 1980s. “Argentina’s Lost
Decade” addresses what complicated the
country’s efforts to escape a depression

after a crash in Argentine export prices and
a severe world credit crunch. In the authors’
shallowing piece, distortions that discouraged investment made sustained growth
increasingly difficult during the 1990s. The
economists’ study of Argentina’s 1980s crisis
suggests that the characteristics of the
nation’s capital markets played an important role in that decade.
“Argentina’s Lost Decade” finds that
because the country has relatively open
capital markets, the fall in total investment
needed to reach a postcrisis equilibrium is
large compared with that of more financially closed countries. In the latter, economic downturns depress interest rates.
Because investment goes up when interest
rates go down, an interest rate drop cushions what would otherwise be a crash in
investment. But in an open capital market
like Argentina’s, the same output fall
would not push down interest rates as
much. The international financial interconnections that result from capital market
openness mean that local interest rates are
determined more by world rates than by
local supply and demand factors. Because
world credit markets impeded the decline
of local credit prices, investment had no
cushion and so fell further in the 1990s.
Labor market rigidities were a second
adjustment problem in the 1980s. Labor
market flexibility could have led to greater
long-term growth, but government payments discouraged job shifts.
“Banking and Currency Crisis Recovery:
Brazil’s Turnaround of 1999” takes a different approach. William Gruben and John
Welch examine how Brazil emerged so
quickly from the economic problems surrounding its 1999 devaluation.
Brazil’s textbook exchange rate crisis
involved persistent deficits and financial
market expectations of more to come. What
made the postdevaluation turnaround so
fast was that the banking system had been
steadily strengthening for five years, the
result of an increase in Brazil’s supervisory
and regulatory authority to enforce sound
banking practices. To ensure sick banks



would have sufficient funds to pay off nervous depositors, capitalization rules were
made more stringent than those of the Basel
Accord and then strengthened even more.
In addition, concerns over private-sector sluggishness encouraged Brazil’s banks
to lower their loans as a share of total assets
and move into government paper. By the
time the megadevaluation occurred, the
government had created a way to hedge
most private-sector foreign obligations. As a
result, the devaluation did not trigger the
wave of loan defaults that occur during
many exchange rate crises. Banks had
already shifted their portfolios away from
private-sector lending anyway. Their heavy
capitalization meant the banks would have
been well protected even if loan defaults
had risen rapidly. This environment allowed
the central bank to pursue policies restrictive enough to assure potential investors
that inflation or further devaluation would
not erode the value of their funds. Once
this foundation was laid, and markets were
convinced it was permanent, growth could
follow quickly.
In “Yesterday’s Crisis Countries: Where
Are They Now?” Gruben further explores
the interconnections between financial
exchange rate crises. Unlike Brazil, many
countries in crisis were torn between stabilizing their exchange and inflation rates
with hard-money policies and minimizing
their banks’ nonperforming loan problems
with softer monetary policies. After initial
indecisiveness during the 1994–95 Tequila
Crisis, Mexico went the hard-money route
and turned its economy around quickly.
Indonesia pursued soft-money policies
punctuated by intermittently tighter
episodes. The result was not only a slower
recovery than Mexico’s but one that largely
occurred only because of a jump in world
oil prices.
Not all large exchange rate devaluations occur under crisis conditions. Some
are simply fiscal moves that while reflective
of problems, are made well before the
onset of serious financial pressure. In
“Venezuela Addresses Economic Stress,”

Gruben and Sherry Kiser note that much of
the government’s income is in dollars.
Because a large share of Venezuelan debt is
typically denominated in local currency
(bolivares), the government sometimes
seems to devalue its currency almost casually, as a way of lowering the dollar value
of its debt. When the dollar has been
pegged and then devalued, the share of
dollar-denominated government income
required to service the bolivar-denominated
debt falls.

Banking research, particularly as it
applies to crises and credit shortages, is
always an important component of CLAE
research. In “When Does Financial Liberalization Make Banks Risky? An Empirical
Examination of Argentina, Canada, and
Mexico,” Gruben, Koo, and Moore examine
connections between the absence of depositor discipline (in which depositors pull
their money from banks with asset quality
problems) and risky lending. This connection does not invariably hold. But when liberalizations of government banking policy
or bank privatizations motivate banks to
compete for market share, the inverse relation between depositor discipline and risky
lending clicks in.
“Banking and Finance in Argentina in
the Period 1900–35,” by Leonard Nakamura
and Carlos Zarazaga, shows the consequences of Argentina’s involuntary evolution
from dependency on foreign (mainly British)
finance to relative self-sufficiency. Domestic
finance did not fill the void left by the
decline of London and the breakdown of the
world financial system in the interwar
period. Neither the Buenos Aires Bolsa nor
private domestic banks developed rapidly
enough to fully replace British investors as
efficient channels for financing private
investment. Consequently, investable Argentine funds were increasingly concentrated in
a single institution, Banco de la Nación
Argentina. This created a lopsided financial
structure vulnerable to rent seeking and
authoritarian (governmental) capture. Never-


theless, several measures—including gold
reserves, interest rates, money supply, bank
credit, and market capitalization of domestic
corporations — attest to Argentina’s high
level of financial development.

Capital Flows and Capital
Account Liberalization
Capital flows and capital account liberalization are often closely related in Latin
America to commercial banking, but recent
CLAE research addresses the topic with
regard to central banking.
In “Capital Account Liberalization and
Inflation,” Gruben and Darryl McLeod challenge the contention that opening the capital account to inflows of foreign funds
triggers bursts of inflation. If the principal
result of capital account liberalization were
simply inrushes of foreign funds that created large increases in the money stock,
that would, indeed, be possible. After all,
inflation is too much money chasing too
few goods. But when international capital
inflows and outflows are possible, investors
can move their assets from a country where
monetary policy looks menacing to a country with less confiscatory and more stable
policies. Open capital markets allow currencies to compete more intensely. This
competition means a central bank’s ability
to inflate its currency is much more limited
than when the capital account is closed, so
inflation may on average be lower.
That is exactly what Gruben and
McLeod find in a 114-country study that
includes most of those in Latin America. Not
only is there a negative relation between
the openness of a nation’s capital account
and its inflation rate, but there is also a negative relation between the act of opening
the capital account and changes in inflation.

Undocumented Immigration
The topic of undocumented immigration is of special interest in the Eleventh
Federal Reserve District, which shares more
than 1,000 miles of border with Mexico.
Most Bank research on undocumented

immigration deals with immigration to the
United States from Mexico.
Undocumented immigration has grown
along with border enforcement in the
United States for over thirty years, leading
some to conclude that U.S. border policies
have been ineffective. In “Coyote Crossings:
The Role of Smugglers in Illegal Immigration and Border Enforcement,” Mark Guzman, Joseph Haslag, and Pia Orrenius offer
an alternative view, extending the literature
by incorporating both the practice of people smuggling and a role for nonwage
income in a two-country, dynamic general
equilibrium model.
The authors define conditions under
which two steady-state equilibriums—or
persistent migration patterns—can exist. In
one pattern, U.S. physical capital is relatively low and illegal immigration is high. In
the other, physical capital is relatively high
and illegal immigration is low. To evaluate
how the system would work, the authors
model two types of shocks: a positive technology shock to smuggling services and an
increase in border enforcement. In the lowcapital steady state, the capital–labor ratio
declines with technological progress in
increases. In the high-capital steady state, a
technology shock causes the capital–labor
ratio to rise and the effect on migration is
indeterminate. The authors show that an
increase in border enforcement is qualitatively equivalent to a negative technology
shock to smuggling. They also show that a
developed country would never choose low
levels of border enforcement rather than an
open border. Moreover, a high level of
enforcement is optimal only if it significantly decreases capital accumulation. The
economists also find that under certain conditions an increase in smuggler technology
will lead to a decline in the optimal enforcement level.
In “Do Amnesty Programs Encourage
Illegal Immigration? Evidence from IRCA,”
Orrenius and Madeline Zavodny examine
whether allowing certain undocumented
immigrants to legalize their status leads to
additional illegal immigration. The study



focuses on the effects of the 1986 Immigration Reform and Control Act (IRCA), which
granted amnesty to more than 3 million
undocumented immigrants. Apprehension
of people illegally crossing the U.S.–Mexico
border declined immediately after the law’s
passage but returned to normal during the
period illegal immigrants could file for
amnesty and the years thereafter. Moreover,
apprehensions did not rise during the filing
period, as would be expected if people
immigrated to the United States to fraudulently apply for the program.
This suggests the amnesty program did
not encourage illegal immigration. IRCA
reduced illegal immigrant apprehensions
in the short run, perhaps because after the
law was passed, potential migrants thought
it would be more difficult to cross the border or get a job in the United States.
Despite some lawmakers’ predictions,
amnesty also did not appear to encourage
illegal immigration in the long run in the
hopes of another such program.
Another Orrenius – Zavodny paper,
“Self-Selection Among Undocumented
Immigrants from Mexico,” tests for what
decides who migrates and when in terms
of skill levels. The results show that push
factors, such as downturns in the Mexican
economy, have the most influence on
whether high-skill workers immigrate to
the United States from Mexico. Pull factors,
such as high wages, have a greater effect
on low-skill workers. Other things equal,
when an economic downturn hits Mexico,
the number of undocumented immigrants
leaving there for the United States rises
and the share of immigrants who are
highly skilled goes up. When Mexico
experiences an economic upturn, other
things equal, the number of undocumented workers coming to the United
States from Mexico goes down, but the
share of low-skill workers increases. When
the U.S. minimum wage goes up, the number of undocumented workers from Mexico increases and the share of such
workers who are low skilled increases.
Moreover, the stricter the border enforcement, the higher the skill level of the aver10

age undocumented worker. Access to a
network of previous immigrants appears to
lower the cost of migrating but has no differential effect on skill level.

The Informal Economy
An important strand of CLAE research
involves the problems informal sectors present for developing economies.
Erwan Quintin’s “Contract Enforcement
and the Size of the Unofficial Economy”
describes a model economy in which the
size of the informal sector declines as the
enforcement of financing contracts in the
formal sector increases. The paper assesses
how the availability of financial intermediation for agents who would otherwise operate in the informal sector might motivate
them to operate in the formal sector.
In this model, agents who operate in
the informal sector can avoid taxes, but
they have no access to official contract
enforcement and so their borrowing opportunities are much constrained. Quintin compares quantitative implications of the model
with the evidence of informal-sector production in developing nations. He finds that
tax enforcement alone cannot generate a
large unofficial sector, but contractual
imperfections can do so and account for
several features typical of the organization
of production in developing countries.
“Are Labor Markets Segmented in
Argentina? A Semiparametric Approach”
evaluates the hypothesis that workers in the
informal sector make lower wages than
they would in the formal sector. Using various definitions of informal employment,
Sangeeta Pratap and Quintin find that on
average, formal-sector wages are higher
than informal-sector wages. But the subject
is more complicated that it first appears.
Applying parametric tests, the authors find
that a formal-sector wage premium remains
even after controlling for individual and
establishment characteristics. However, the
parametric approach results in econometric
problems that can be solved with semiparametric methods. With such methods, the
estimates of the formal-sector premium are


small, statistically insignificant, or even negative. This means that once the authors correct for econometric problems, they find no
evidence that Argentina’s labor markets are
segmented along formal-sector versus informal-sector lines. Informal-sector workers do
not make less once skill levels are
accounted for.
A related study by Pedro Amaral and
Quintin, “The Implications of Capital–Skill
Complementarity in Economies with Large
Informal Sectors,” notes that formal-sector
workers in most developing nations have
more experience and education and higher
earnings than workers in the informal sector. While this is commonly thought to
mean low-skill workers face barriers to
entry into the formal sector, there is little
direct evidence these barriers are significant
enough to matter.
Amaral and Quintin’s paper describes a
model with significant differences between
formal and informal workers even though
labor markets are perfectly competitive. In
equilibrium, the informal sector emphasizes
low-skill work because informal managers
have less access to outside financing, so
they substitute low-skill labor for physical
capital. The financial contract enforcement
problems discussed in the earlier Quintin
paper express themselves in the Amaral and
Quintin paper through the mix of labor that
informal-sector firms use compared with
what they would choose in a world where
credit is readily available and all firms operate in the formal sector.

Political Pressures and the
Latin American Economies
The interaction of political and economic pressures has been another CLAE
focus. In “Is Mexico Ready to Roar?” Quintin
compares Mexico with the East Asian tigers,
pointing out that in 1965 Korea’s income
per capita was half Mexico’s but is now
more than twice that country’s. Some reasons for the change are obvious. Korea has
invested far more in education and plant
and equipment. Mexico collects much less
tax as a share of GDP—even less than

many Latin American countries—and so
spends less as a share of GDP. As much as
half of Mexico’s economy does not pay taxes,
leaving the financing burden to the rest.
A major cause of the problem is the
Mexican government’s weak enforcement of
contracts between private-sector parties,
which makes financial institutions reluctant
to lend to the sector. This, in turn, discourages potential taxpayers from paying taxes.
In other countries, an important reason firms
enter the private sector is so they can produce tax receipts and other documentation
that will allow them to borrow money.
Political problems are also the focus in
the Zarazaga and Kiser article “Latin American Market Reforms Put to the Test.” Consistent with the theorem of the second best,
they note that introducing reforms in some
markets but not others is not necessarily better than a little government intervention in all
of them. While Latin America has made great
progress in financial and trade liberalization,
the region’s governments lack the political
commitment to deregulate labor markets.
The result is not enough jobs for workers
displaced by the trade liberalizations.
In “The Politics of Brazil’s Financial
Troubles,” Gruben and Quintin show how
market fears over the 2002 presidential election rapidly raised interest rates and suppressed exchange rates in Brazil, increasing
the volatility of the cost of doing business.
“Financial Globalization: Manna or Menace? The Case of Mexican Banking” outlines
how Mexico’s mid-1990s Tequila Crisis
resulted in political pressure to open the
nation’s banking system to foreign owners.
After decades-long proscriptions on any but
the smallest foreign footholds, about fourfifths of Mexico’s banking assets are now
controlled by foreign firms. Despite concerns
about foreign ownership, Robert Bubel and
Edward Skelton find that efficiency and capital adequacy have been the result.



Other Activities
CLAE staff members participated in a
number of activities in addition to research
and writing last year.
Gruben and Kiser accompanied Dallas
Fed President Robert D. McTeer, Jr., to the
Central Bank of Brazil. There they met with
bank President Arminio Fraga and board
members Ilan Goldfajn and Beny Parnes
and their staffs to discuss the Brazilian and
U.S. economies and monetary policies.
The CLAE was active in the formation
of the Institute for the Study of Financial
Intermediation and Growth. ISFIG, a joint
endeavor of the Dallas Fed and the University of Texas at Austin, was established in
2002 to promote research and dialogue
between policymakers and scholars, with a
focus on Latin America.
The center organized a media
roundtable at the Dallas Fed’s San Antonio
Branch that included presentations on Mexican fiscal reform (Quintin), the country’s
financial structure (Skelton), and its economic outlook (Keith Phillips); policy issues
on Mexican–U.S. immigration and trade
(Pia Orrenius); and free market reforms in
Latin America (Zarazaga).
A CLAE seminar at Trinity University
in San Antonio covered the globalization
of the Mexican banking system (Skelton)
and the country’s economic outlook
(Phillips); the integration of U.S. and Mexican markets (Orrenius); the stock wealth
effect (John Duca); and free trade in the
Americas (Zarazaga).
Policy issues were the focus in other
forums. Gruben presented “How Much
Does International Trade Affect Business
Cycle Synchronization?” at the Latin American Meeting of the Econometric Society in
Sao Paulo and the Latin American and
Caribbean Economic Association meetings
in Madrid. He presented “Capital Account
Liberalization and Disinflation in the 1990s”
at the Central Bank of Uruguay’s Jornadas
de Economia in Montevideo and “Mexico
and U.S. Business Cycles: Disconnects and
Connects” at Texas A&M International University. Gruben spoke on “Some Finer
Points of Trade Liberalization: Did NAFTA

Affect Maquiladora Industries at All?” at a
conference whose sponsors included the
Dallas Fed’s El Paso Branch and the University of Texas at El Paso. Gruben coauthored “Resisting and Recovering from
Crisis: Lessons from Brazil and Argentina,”
which John Welch presented at a Federal
Reserve Bank of Atlanta conference on
domestic capital and global finance in
Latin America.
Zarazaga discussed “The Convertibility
Law, Optimal Policy Rules, and the Fate of
Free Market Reforms” at the Teresa Lozano
Long Institute of Latin American Studies at
UT – Austin. He presented “Argentina’s
Recovery and Excess Capital Shallowing” at
meetings of the Latin American and
Caribbean Economics Association in Madrid,
Centro de Estudios Macroeconomicos de
Argentina in Buenos Aires, and Georgetown
University. He presented “Banking and
Finance in Argentina in the Period 1900–35”
at the 13th World Economic History
Congress. At an international seminar organized by the Central Bank of Venezuela and
Universidad Central de Venezuela, Zarazaga
presented “Conjectures on Why a Devaluation Did Not Cure Argentina.” He presented
“Emerging or Submerging Markets? The Consequences of Economic Turmoil in Latin
America” to the James A. Baker III Institute
for Public Policy at Rice University. He spoke
on “Why Latin America Needs the Free Trade
Agreement for the Americas More than Ever”
at Austin College’s Center for Southwestern
and Mexican Studies and “Argentina’s Meltdown: Food for Thought” to the Dallas Committee on Foreign Relations.
Orrenius presented “The Role of U.S.
Border Enforcement in the Crossing Behavior
of Mexican Migrants” at the Third Binational
Conference on Mexico–U.S. Migration in
Puerto Vallarta. She talked about the “Impact
of Trade on the U.S. Mexico Border” at the
annual meeting of the Society of American
Business Writers and Editors. “Do Amnesty
Programs Encourage Illegal Immigration? Evidence from IRCA” was her topic at a National
Institutes of Health conference and at meetings of the Population Association of America


and the Association of Private Enterprise Education. Mark Guzman presented “Coyote
Crossings: The Role of Smugglers in Illegal
Immigration and Border Enforcement” at the
Latin American and Caribbean Economics
Association meetings in Madrid.
Quintin presented “The Implications of
Capital–Skill Complementarity in Economies

with Large Informal Sectors” at the University
of Montreal, and coauthor Amaral talked
about the paper at a staff seminar at the Dallas Fed. Quintin presented “Growing Old
Together: Firm Survival and Turnover Rates”
at the Federal Reserve Bank of Atlanta and to
a staff seminar at the Dallas Fed.

CLAE Publications, Papers,
and Submissions
Amaral, Pedro S., and Erwan Quintin, “The
Implications of Capital–Skill Complementarity in Economies with Large Informal Sectors,” submitted to Journal of Monetary
Economics, November 2002.
Bubel, Robert V., and Edward C. Skelton,
“Financial Globalization: Manna or Menace?
The Case of Mexican Banking,” Federal
Reserve Bank of Dallas Southwest Economy,
January/February 2002.

Gruben, William C., Jahyeong Koo, and
Robert Moore, “When Does Financial Liberalization Make Banks Risky? An Empirical
Examination of Argentina, Canada, and
Mexico,” in Prompt Corrective Action in
Banking: 10 Years Later, ed. George Kaufman (Amsterdam: Elsevier Science, 2002),

Gruben, William C., “Yesterday’s Crisis Countries: Where Are They Now?” in Forex Markets: Exchange Rate Dynamics, ed. G. R. K.
Murty (Hyderabad, India: ICFAI Press, 2002).

Guzman, Mark G., Joseph H. Haslag, and
Pia M. Orrenius, “Coyote Crossings: The
Role of Smugglers in Illegal Immigration
and Border Enforcement,” Federal Reserve
Bank of Dallas Working Paper no. 0201,
submitted to International Economic
Review, December 2002.

Gruben, William C., and Sherry L. Kiser,
“Venezuela Addresses Economic Stress,”
Federal Reserve Bank of Dallas Southwest
Economy, March/April 2002.

Kydland, Finn E., and Carlos E. J. M.
Zarazaga, “Argentina’s Lost Decade,” Review
of Economic Dynamics 5 (January 2002):

Gruben, William C., and Darryl McLeod,
“Capital Account Liberalization and Inflation,” Economics Letters 77 (October 2002),

———, “Argentina’s Recovery and Excess
Capital Shallowing of the 1990s,” Estudios
de Economia 29 (June 2002): 35–45.

Gruben, William C., and Erwan Quintin,
“The Politics of Brazil’s Financial Troubles,”
Federal Reserve Bank of Dallas Southwest
Economy, September/October 2002.
Gruben, William C., and John H. Welch,
“Banking and Currency Crisis Recovery:
Brazil’s Turnaround of 1999,” Federal
Reserve Bank of Dallas Economic and
Financial Review, Fourth Quarter 2001
(published 2002).

Nakamura, Leonard, and Carlos E. J. M.
Zarazaga, “Banking and Finance in
Argentina in the Period 1900–35,” paper
presented at the 13th World Economic History Congress, Buenos Aires, July 22–26,
Orrenius, Pia M., and Madeline Zavodny,
“Do Amnesty Programs Encourage Illegal
Immigration? Evidence from IRCA,” Federal
Reserve Bank of Dallas Working Paper no.
0103, submitted to Demography, July 2002.



———, “Self-Selection Among Undocumented Immigrants from Mexico,” submitted to Journal of Development Economics,
November 2002.
Pratap, Sangeeta, and Erwan Quintin, “Are
Labor Markets Segmented in Argentina? A
Semiparametric Approach,” Center for Latin
American Economics Working Paper no.
0701, submitted to International Economic
Review, April 2002.
Quintin, Erwan, “Contract Enforcement and
the Size of the Unofficial Economy,” submitted to Review of International Economics, July 2002

Zarazaga, Carlos E. J. M., “Conjectures on
Why a Devaluation Did Not Cure
Argentina,” Revista Venezolana de Analisis
de Coyuntura, proceedings of the international symposium “Monetary Options for
South America in Light of the Globalization
and Integration Process,” organized by the
Central Bank of Venezuela and Universidad
Central de Venezuela (2002).
Zarazaga, Carlos E. J. M., and Sherry Kiser,
“Latin American Market Reforms Put to the
Test,” Federal Reserve Bank of Dallas
Southwest Economy, July/August 2002.

———, “Is Mexico Ready to Roar?” Federal
Reserve Bank of Dallas Southwest Economy,
September/October 2002.



Center for Latin American Economics
Membership Application
P.O. Box 655906
Dallas, TX 75265-5906
Fax: 214-922-5194
The Federal Reserve Bank of Dallas has established the Center for Latin American Economics in its Research Department to facilitate
communication among researchers, academicians, and policymakers concerned with the economies of Latin America. We invite people
with this interest to become members of the center. There are no membership fees.
Upon affiliation with the center, you will periodically receive center publications free of charge and will be able to publish abstracts of
your work in Research Abstracts, which we issue twice a year. The purpose of this publication is to create an efficient means of timely
communication among those dedicated to economic research, teaching, and analysis of economic policy in Latin America.
In preparation for our next issue of Research Abstracts, we invite all center members to send us their recent research papers on
Latin American monetary and economic issues, together with short abstracts for each paper. We ask that the authors write their abstracts
in English and limit the length to 250 words. We also ask that the authors include their address, telephone and fax numbers, and
e-mail addresses as well as those of their coauthors so those interested in obtaining the papers can contact the authors directly. Also
include any URLs where the papers may be found. The abstracts you send will appear in the next issue of Research Abstracts, which
will be sent to all members.
The center is here to serve you and all those who are interested in Latin American economic research. Please pass the word about the
center to your colleagues and invite them to write to us. We look forward to hearing from you.


William C. Gruben
Director General
Phone 214-922-5155

Carlos E. Zarazaga
Executive Director
Phone 214-922-5165

Membership Application
Center for Latin American Economics

Name/title: __________________________________________________________________________________________________
Address: ____________________________________________________________________________________________________
Address: ____________________________________________________________________________________________________
Address: ____________________________________________________________________________________________________
Phone: _________________________ Fax: _________________________ E-mail: ______________________________________
Web site: ___________________________________________________________________________________________________
Major areas of interest/research:________________________________________________________________________________

Centro Para Estudios Económicos Latinoamericanos
Solicitud de Inscripción
P.O. Box 655906
Dallas, TX 75265-5906
Fax: 214-922-5194
El Banco de la Reserva Federal de Dallas ha establecido el Centro para Estudios Económicos Latinoamericanos con el propósito de crear
una red de comunicación y discusión sobre temas económicos entre investigadores y estudiosos de las economías de América Latina así
como entre éstos y aquellos con responsabilidades en decisiones de política económica en los países del área. Invitamos a todos ellos a
hacerse socio del centro. No hay ninguna cuota de afiliación o suscripción.
Con su afiliación al centro los socios adquieren el derecho a recibir periódicamente, sin costo, las publicaciones del centro, así como a
publicar los resúmenes de sus trabajos de investigación en nuestra publicación Research Abstracts. El objetivo de esta publicación es
crear un canal de comunicación ágil y actualizado entre aquellos dedicados a la investigación económica, su enseñanza, o su aplicación
al nivel de política económica en América Latina.
Precisamente, en preparación de la próxima edición del Research Abstracts, invitamos a los socios del centro a enviar un resumen de
todos los trabajos de investigación sobre temas económicos que tengan actualmente en elaboración. Rogamos que los autores escriban
los resúmenes en inglés, y que los envíos se limiten a 250 palabras y a temas económicos. Se ruega a los autores incluir en los
resúmenes sus direcciones postales, correo electrónico, número de FAX, y la dirección de web a fin de que otros socios o personas
interesadas en sus trabajos puedan solicitárselos directamente.
Reiteramos que el objetivo del centro es proveer un canal de comunicación ágil y eficaz entre todos aquellos con interés en el estudio
de temas económicos que puedan ser de especial relevancia para América Latina. Por favor no dude en hacernos llegar sus sugerencias
al respecto. Esperamos tener pronto noticias suyas.


William C. Gruben
Director General
Phone 214-922-5155

Carlos E. Zarazaga
Executive Director
Phone 214-922-5165

Solicitud de Inscripción
Centro Para Estudios Económicos Latinoamericanos

Compañía/institución: ________________________________________________________________________________________
Teléfono: _____________________ Fax: ____________________ La dirección de web: _________________________________
La dirección de correo electrónico: _____________________________________________________________________________
Interés de investigación: ______________________________________________________________________________________

Center Staff
Director General
William C. Gruben
Ph.D., Economics, University of Texas at Austin

Executive Director
Carlos E. J. M. Zarazaga
Ph.D., Economics, University of Minnesota

Senior Economist
Pia M. Orrenius
Ph.D., Economics, University of California at Los Angeles

Senior Economist
Erwan Quintin
Ph.D., Economics, University of Minnesota

Coordinator and Associate Economist
Sherry L. Kiser
M.A., Southern Methodist University

Research Assistant
Elias Brandt
B.A., Economics, University of Colorado

Visiting Scholars
Pedro Amaral, Southern Methodist University
Finn Kydland, Carnegie Mellon University

Executive Staff Assistant
Ana Prats

Federal Reserve Bank of Dallas
2200 N. Pearl St.
Dallas, TX 75201– 2272