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Devaluation and Output Growth in Palestine: Evidence from a CGE model

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  • Hakeem Eltalla

    (Faculty of Business and Finance, Alaqsa University, Gaza, Palestine.)

Abstract

Whether exchange rate devaluation supports economic growth or not is an open question empirically. This paper analyzes the impacts of the devaluation on the Palestinian economy using a computable general equilibrium model. We investigate the effect of a 15% devaluation of the exchange rate on output growth of Palestine. By using latest data (a 2012 social accounting matrix for Palestine) and CGE modeling, this paper finds that devaluation is contractionary in Palestine. A 15% devaluation of the exchange rate results on lower real gross domestic product, the simulation results show that GDP will decrease by 1.99 %. Import and export will decline by 20.61% and 52.67% respectably. Also, a 15 percent devaluation will reduce the level of private consumption by 6.31 % and inflation (CPI) will increase by 4.7 from the base line.

Suggested Citation

  • Hakeem Eltalla, 2013. "Devaluation and Output Growth in Palestine: Evidence from a CGE model," European Journal of Business and Economics, Central Bohemia University, vol. 8(4), pages 4221:8-4221, May.
    • Handle: RePEc:aad:ejbejj:v:8:y:2013:i:4:p:422
    DOI: 10.12955/ejbe.v8i4.422
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    References listed on IDEAS

    as
    1. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-508, August.
    2. Willenbockel, Dirk, 2006. "Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment," MPRA Paper 920, University Library of Munich, Germany.
    3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, Enero-Abr.
    4. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
    5. Dorosh, Paul A. & Mazunda, John & Pauw, Karl, 2013. "Exchange rate policy and devaluation in Malawi:," IFPRI discussion papers 1253, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Mohsen Bahmani-Oskooee & Amirhossein Mohammadian, 2018. "Asymmetry Effects of Exchange Rate Changes on Domestic Production in Emerging Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(6), pages 1442-1459, May.
    2. Mohsen Bahmani-Oskooee & Ferda Halicioglu & Amirhossein Mohammadian, 2018. "On the asymmetric effects of exchange rate changes on domestic production in Turkey," Economic Change and Restructuring, Springer, vol. 51(2), pages 97-112, May.
    3. M Bahmani-Oskooee & A Mohammadian, 2018. "On the Relation between Domestic Output and Exchange Rates in 68 Countries: An Asymmetry Analysis," Economic Issues Journal Articles, Economic Issues, vol. 23(2), pages 1-29, September.
    4. Mohsen Bahmani-Oskooee & Augustine C. Arize, 2020. "Asymmetric response of domestic production to exchange rate changes: evidence from Africa," Economic Change and Restructuring, Springer, vol. 53(1), pages 1-24, February.
    5. Misbah Nosheen & Beenish Chohan & Javed Iqbal & Mark Wohar, 2023. "Asymmetric response of domestic production to exchange rate changes: Evidence from southeast Asian countries," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 54-75, November.
    6. Mohsen Bahmani-Oskooee & Seyed Hesam Ghodsi, 2019. "On the Link between Value of the Dollar and Housing Production in the U.S.: Evidence from State Level Data," International Real Estate Review, Global Social Science Institute, vol. 22(2), pages 231-274.

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    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

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