Are Devaluations Really Contractionary?
AbstractGiven the theoretical disagreement on the effect of a devaluation on output, empirical evidence plays an fundamental role. Empirical findings have favored the view that devaluations are contractionary. In this paper the author argues that what stands behind these results is selection bias. In theory, the same variables that determine the probability of a devaluation determine the rate of growth of output. The author controls for selection bias using matching estimators and extensive dataset of 155 countries for the period 1970-1999 that includes as many as 264 devaluation episodes. Not controlling for selection bias, devaluations appear to becontractionary, in line with previous findings. Nevertheless, when the author controls for this bias, the contractionary effect vanishes. Extensive sensitivity analysis is provided.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 182.
Date of creation: Sep 2002
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael M. Hutchison, 2001.
"A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs,"
NBER Working Papers
8305, National Bureau of Economic Research, Inc.
- Michael Hutchison, 2003. "A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 321-360 National Bureau of Economic Research, Inc.
- Michael M. Hutchison, . "A Cure Worse Than The Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs," EPRU Working Paper Series 01-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000.
"Investor protection and corporate governance,"
Journal of Financial Economics,
Elsevier, vol. 58(1-2), pages 3-27.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
- La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
- Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
- Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000.
"Balance Sheets and Exchange Rate Policy,"
NBER Working Papers
7840, National Bureau of Economic Research, Inc.
- Anne O. Krueger, 1978. "Liberalization Attempts and Consequences," NBER Books, National Bureau of Economic Research, Inc, number krue78-1.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996.
"Financial Crises in Emerging Markets: The Lessons from 1995,"
NBER Working Papers
5576, National Bureau of Economic Research, Inc.
- Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
- Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Harvard Institute of Economic Research Working Papers 1759, Harvard - Institute of Economic Research.
- Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999.
"Finance and the sources of growth,"
Policy Research Working Paper Series
2057, The World Bank.
- Sweder van Wijnbergen, 1986.
"Exchange Rate Management and Stabilization Policies in Developing Countries,"
in: Economic Adjustment and Exchange Rates in Developing Countries, pages 17-42
National Bureau of Economic Research, Inc.
- Van Wijnbergen, Sweder, 1986. "Exchange rate management and stabilization policies in developing countries," Journal of Development Economics, Elsevier, vol. 23(2), pages 227-247, October.
- Kamal Upadhyaya & Mukti Upadhyay, 1999. "Output effects of devaluation: Evidence from Asia," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 89-103.
- Derrick Reagle & Dominick Salvatore, 2000. "Forecasting Financial Crises in Emerging Market Economies," Open Economies Review, Springer, vol. 11(3), pages 247-259, July.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999.
"The financial accelerator in a quantitative business cycle framework,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Robert J. Barro, 1998.
"Determinants of Economic Growth: A Cross-Country Empirical Study,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262522543, January.
- Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
- repec:chb:bcchwp:03 is not listed on IDEAS
- Edward, Sebastian, 1986.
"Are Devaluations Contractionary?,"
The Review of Economics and Statistics,
MIT Press, vol. 68(3), pages 501-08, August.
- Upadhyaya, Kamal P., 1999. "Currency devaluation, aggregate output, and the long run: an empirical study," Economics Letters, Elsevier, vol. 64(2), pages 197-202, August.
- Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
- Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996.
" Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics,"
Journal of Economic Growth,
Springer, vol. 1(3), pages 363-89, September.
- Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
- 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.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999.
"The Twin Crises: The Causes of Banking and Balance-of-Payments Problems,"
American Economic Review,
American Economic Association, vol. 89(3), pages 473-500, June.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
- Matthieu Bussière & Sweta c Saxena & Camilo Tovar, 2010.
"Chronicle of currency collapses: re-examining the effects on output,"
BIS Working Papers
314, Bank for International Settlements.
- Bussière, Matthieu & Saxena, Sweta C. & Tovar, Camilo E., 2012. "Chronicle of currency collapses: Re examining the effects on output," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 680-708.
- Bussière, Matthieu & Saxena, Sweta C. & Tovar, Camilo E., 2010. "Chronicle of currency collapses: re-examining the effects on output," Working Paper Series 1226, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).
If references are entirely missing, you can add them using this form.