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 â€˜realâ€™, 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:
- SÃ¸ren 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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- Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, 02.
- Andreas Haufler & SÃ¸ren Bo Nielsen, .
"Dynamic Effects of an Anticipated Switch from Destination- to Origin-Based Commodity Taxation,"
EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics
96-16, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Andreas Haufler & Søren Nielsen, 1997. "Dynamic effects of an anticipated switch from destination- to origin-based commodity taxation," Journal of Economics, Springer, vol. 66(1), pages 43-69, February.
- Haufler, Andreas & Nielsen, SÃ¸ren Bo, 1997. "Dynamic effects of an anticipated switch from destination- to origin-based commodity taxation," Munich Reprints in Economics, University of Munich, Department of Economics 20405, University of Munich, Department of Economics.
- Chan, Tze-Haw, 2002. "Dynamic financial linkages among the Asia Pacific economies: an empirical assessment of real interest parity condition," MPRA Paper 34642, University Library of Munich, Germany.
- AKITOBY, Bernardin, 1997. "RigiditÃ© normale, dÃ©valuation et Ã©quilibre gÃ©nÃ©ral intertemporel," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9708, Universite de Montreal, Departement de sciences economiques.
- Hwan-Chyang Lin & Hui-Kuan Tseng, 1993. "Exchange rate shocks and the current account under monopolistic competition: An intertemporal optimization model," Open Economies Review, Springer, vol. 4(2), pages 133-150, June.
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