Current-account effects of a devaluation in an optimizing model with capital accumulation
AbstractThis article explores the consequences of a devaluation in the context of a ârealâ, optimizing model of a small open economy. What provides for real effects of the devaluation is the existence of nominal wage stickiness during a contract period. We show that if this contract period is relatively short, the devaluation is bound to improve the current account on impact, whereas this will deteriorate in the case of a long contract period, and the more so the smaller are adjustment costs in investment. In addition, we study the consequences for the terms of trade and for the stocks of foreign assets and of capital.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 15 (1991)
Issue (Month): 3 (July)
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Web page: http://www.elsevier.com/locate/jedc
Other versions of this item:
- Søren Bo Nielsen, 1989. "Current Account Effects of a Devaluation in an Optimizing Model with Capital Accumulation," Discussion Papers 89-16, University of Copenhagen. Department of Economics.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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Munich Reprints in Economics
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