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Devaluation and pass-through in indebted and risky economies

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  • García-Solanes, José
  • Torrejón-Flores, Fernando

Abstract

This paper develops a structural general equilibrium model to analyse the pass-through from devaluation to producer and consumer prices in Emerging Market Economies (EMEs). Simulation analysis shows that balance-sheet effects created by capital market imperfections and the home bias shrink the impact of devaluation on both types of internal prices. This finding helps explain why pass-through to internal prices is low in EMEs. It also shows that, for benchmark values of the parameters, devaluation remains a good device to modify the real exchange rate and to mitigate the negative impact of external shocks in EMEs.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 1 (January)
Pages: 36-45

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Handle: RePEc:eee:reveco:v:19:y:2010:i:1:p:36-45

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Web page: http://www.elsevier.com/locate/inca/620165

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Keywords: Devaluation Pass-through Emerging market economies;

References

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  1. Arminio Fraga & Ilan Goldfajn & André Minella, 2003. "Inflation Targeting in Emerging Market Economies," Working Papers Series 76, Central Bank of Brazil, Research Department.
  2. Al-Abri, Almukhtar S. & Goodwin, Barry K., 2009. "Re-examining the exchange rate pass-through into import prices using non-linear estimation techniques: Threshold cointegration," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 142-161, January.
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  17. Brissimis, Sophocles N. & Kosma, Theodora S., 2007. "Market power and exchange rate pass-through," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 202-222.
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Citations

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Cited by:
  1. Aron, Janine & Farrell, Greg & Muellbauer, John & Sinclair, Peter, 2010. "Exchange Rate Pass-through and Monetary Policy in South Africa," CEPR Discussion Papers 8153, C.E.P.R. Discussion Papers.
  2. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2010. "Exchange rate pass-through: A generalization," Journal of Mathematical Economics, Elsevier, vol. 46(4), pages 493-504, July.
  3. Beladi, Hamid & Chakrabarti, Avik, 2012. "Stochastic processes and target zones revisited," Economics Letters, Elsevier, vol. 116(1), pages 34-36.

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