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Why is Inflation so Low after Large Devaluations?

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Author Info

  • Ariel Burstein

    () (University of Michigan)

  • Martin Eichenbaum

    () (Northwestern University)

  • Sergio Rebelo

    () (Northwestern University)

Abstract

This paper studies the behavior of inflationnafter nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that distribution costs and substitution away from imports to lower quality local goods can account quantitatively for the post-devaluation behavior of prices.

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File URL: http://econ.core.hu/doc/dp/dp/mtdp0308.pdf
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Bibliographic Info

Paper provided by Institute of Economics, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0308.

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Length: 56 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:has:discpr:0308

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Related research

Keywords: inflation; devaluation; exchange rates;

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References

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  1. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
  2. Martin Neil Baily & Robert M. Solow, 2001. "International Productivity Comparisons Built from the Firm Level," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 151-172, Summer.
  3. Amitrano, A & De Grauwe, Paul & Tullio, G, 1997. "Why has inflation remained so low after the large exchange rate depreciations of 1992?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101475, Katholieke Universiteit Leuven.
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Citations

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Cited by:
  1. Burstein, Ariel Tomas & Neves, Joao C & Rebelo, Sérgio, 2004. "Investment Prices and Exchange Rates: Some Basic Facts," CEPR Discussion Papers 4290, C.E.P.R. Discussion Papers.
  2. de Blas, Beatriz, 2008. "International Transmission of Shocks under Financial Frictions: Some Implications for International Business Cycle Comovement," Working Papers in Economic Theory 2008/01, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  3. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 583-606.
  4. Charles Engel, 2004. "On the Relationship between Pass-Through and Sticky Nominal Prices," Working Papers 112004, Hong Kong Institute for Monetary Research.
  5. Michael B. Devereux & Charles Engel, 2006. "Expenditure Switching vs. Real Exchange Rate Stabilization: Competing Objectives for Exchange Rate Policy," NBER Working Papers 12215, National Bureau of Economic Research, Inc.

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