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Devaluation and pass-through in indebted and risky economies

  • García-Solanes, José
  • Torrejón-Flores, Fernando

This paper develops a structural general equilibrium model to analyse the pass-through from devaluation to producer and consumer prices in Emerging Market Economies (EMEs). Simulation analysis shows that balance-sheet effects created by capital market imperfections and the home bias shrink the impact of devaluation on both types of internal prices. This finding helps explain why pass-through to internal prices is low in EMEs. It also shows that, for benchmark values of the parameters, devaluation remains a good device to modify the real exchange rate and to mitigate the negative impact of external shocks in EMEs.

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File URL: http://www.sciencedirect.com/science/article/pii/S1059-0560(09)00023-9
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 1 (January)
Pages: 36-45

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Handle: RePEc:eee:reveco:v:19:y:2010:i:1:p:36-45
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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