Poddy, Research, and External Affairs S WORKING PAPERS Trade Policy I Country Economics Department The World Bank August 1990 WPS 485 Do Labor Market Distortions Cause Overvaluation and Rigidity of the Real Exchange Rate? Ramon Lopez and Luis Riveros Liberalization of the labor market would substantiallyreduce or prevent overvaluation of the real exchange rate. ThePolicy. Reseatch. and External Affairs Complex distributes PRE Working Papessto disseminate the findings of work in progress and to arcownge the exchange of ideas among Bank staff and all othas inteested in development issues. These papers cary tde names of the authors, reflect only their views, and should be wed and cted accordingly. The findings, interpmetations, and conclusions am the authotos own. They should not be attributed to the World Bank, its Board of Directors, its mnnaganent, or any of its member counties. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized