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Learning by devaluating: A supply-side effect of competitive devaluation

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  • Tervala, Juha

Abstract

This study shows that the learning-by-doing (LBD) effect has substantial consequences for the international transmission of a monetary policy. LDB implies that a country can increase its productivity-increasing skill level by competitive devaluation, which happens at the expense of the neighbour if the Marshall–Lerner condition is satisfied. If measured by the cumulative change in output after 12 quarters, LBD increases the harmful effect of competitive devaluation on foreign output by 85–125%. If LBD is sufficiently strong and the cross-country substitutability is high (low), the effect of the monetary policy on foreign (domestic) welfare reverses to negative (positive).

Suggested Citation

  • Tervala, Juha, 2013. "Learning by devaluating: A supply-side effect of competitive devaluation," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 275-290.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:275-290
    DOI: 10.1016/j.iref.2012.10.007
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    Cited by:

    1. Usman, Umer & Batabyal, Amitrajeet A., 2014. "Goods production, learning by doing, and growth in a region with creative and physical capital," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 92-99.
    2. Philipp Engler & Juha Tervala, 2016. "Hysteresis and Fiscal Policy," Discussion Papers of DIW Berlin 1631, DIW Berlin, German Institute for Economic Research.
    3. Bahmani-Oskooee, Mohsen & Harvey, Hanafiah & Hegerty, Scott W., 2014. "Industry trade and exchange-rate fluctuations: Evidence from the U.S. and Chile," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 619-626.
    4. Reher, Gerrit & Wilfling, Bernd, 2014. "The valuation of European call options on zero-coupon bonds in the run-up to a fixed exchange-rate regime," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 483-496.

    More about this item

    Keywords

    Beggar-thyself; Beggar-thy-neighbour; Competitive devaluation; Learning by doing; Open economy macroeconomics;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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