Devaluation and monetary policy with import compression
AbstractThe consequences of exchange rate and monetary policies are investigated under two foreign exchange regimes. The analysis is motivated by the experiences in sub-Saharan Africa. The supply side of the open economy model developed by Buffle (1986) is modified to take into account the import dependency of the region. In the first regime, with endogenous foreign savings, overvalued exchange rate and expansionary monetary policy tend to increase the current account deficit. In the second regime, when intermediate imports are rationed to handle the foreign exchange shortage, overvaluation and monetary expansion are shown to be likely sources of output contraction. The cost of policy reorientation is reduced investment. Copyright Kluwer Academic Publishers 1994
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 5 (1994)
Issue (Month): 2 (March)
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Web page: http://www.springerlink.com/link.asp?id=100323
Devaluation; monetary policy; import regulation; foreign exchange constraint;
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- Wheeler, David, 1984. "Sources of stagnation in sub-Saharan Africa," World Development, Elsevier, vol. 12(1), pages 1-23, January.
- P. Krugman & L. Taylor, 1976.
"Contractionary Effects of Devaluations,"
191, Massachusetts Institute of Technology (MIT), Department of Economics.
- J. Saul Lizondo & Peter J. Montiel, 1989. "Contractionary Devaluation in Developing Countries: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 182-227, March.
- Buffie, Edward F., 1986. "Devaluation, investment and growth in LDCs," Journal of Development Economics, Elsevier, vol. 20(2), pages 361-379, March.
- Edmar Bacha, 1982. "Growth with limited supplies of foreign exchanges: a reappraisal of the two-gap model," Textos para discussÃ£o 26, Department of Economics PUC-Rio (Brazil).
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