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Why Are Rates of Inflation So Low After Large Devaluations?

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  • Ariel Burstein
  • Martin Eichenbaum
  • Sergio Rebelo

Abstract

This paper studies the behavior of inflation after 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.

Suggested Citation

  • Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2002. "Why Are Rates of Inflation So Low After Large Devaluations?," NBER Working Papers 8748, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8748
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    References listed on IDEAS

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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