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Latvia’s Recession: The Cost of Adjustment With An “Internal Devaluation”

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Author Info

  • Mark Weisbrot
  • Rebecca Ray

Abstract

The Latvian recession, which is now more than two years old, has seen a world-historical drop in GDP of more than 25 percent. The IMF projects another 4 percent drop this year, and predicts that the total loss of output from peak to bottom will reach 30 percent. This would make Latvia’s loss more than that of the U.S. Great Depression downturn of 1929-1933. This paper argues that the depth of the recession and the difficulty of recovery are attributable in large part to the decision to maintain the country’s overvalued fixed exchange rate, because it prevents the government from pursuing the policies necessary to restore economic growth.

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Bibliographic Info

Paper provided by Center for Economic and Policy Research (CEPR) in its series CEPR Reports and Issue Briefs with number 2010-02.

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Length: 19 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:epo:papers:2010-02

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Keywords: IMF; Latvia; EU; exchange rates; peg;

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References

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  1. Charles Calomiris, 2007. "Devaluation with contract redenomination in Argentina," Annals of Finance, Springer, vol. 3(1), pages 155-192, January.
  2. Jose Antonio Cordero, 2009. "The IMF’s Stand-by Arrangements and the Economic Downturn in Eastern Europe: The Cases of Hungary, Latvia, and Ukraine," CEPR Reports and Issue Briefs 2009-31, Center for Economic and Policy Research (CEPR).
  3. Roberto Frenkel & Martín Rapetti, 2007. "Argentina's Monetary and Exchange Rate Policies after the Convertibility Regime Collapse," CEPR Reports and Issue Briefs 2007-12, Center for Economic and Policy Research (CEPR).
  4. Roberto Frenkel, 2007. "Argentina: The Central Bank in the Foreign Exchange Market," CEPR Reports and Issue Briefs 2007-03, Center for Economic and Policy Research (CEPR).
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Cited by:
  1. Juan Antonio Montecino & Jose Antonio Cordero, 2010. "Capital Controls and Monetary Policy in Developing Countries," CEPR Reports and Issue Briefs 2010-10, Center for Economic and Policy Research (CEPR).
  2. Insel, Aysu & Korkmaz, Abdurrahman, 2010. "The contagion effect: evidences from former Soviet Economies in Eastern Europe," MPRA Paper 24999, University Library of Munich, Germany.

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