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

Listed author(s):
  • Tervala, Juha

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).

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File URL: http://www.sciencedirect.com/science/article/pii/S1059056012001244
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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 275-290

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Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:275-290
DOI: 10.1016/j.iref.2012.10.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  1. Sutherland, Alan, 2006. "The expenditure switching effect, welfare and monetary policy in a small open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1159-1182, July.
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  7. Tervala, Juha, 2012. "International welfare effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 356-376.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
  9. Juha Tervala, 2010. "The International Transmission of Monetary Policy in a Dollar Pricing Model," Open Economies Review, Springer, vol. 21(5), pages 629-654, November.
  10. Charles Bean, 1988. "Sterling Misalignment and British Trade Performance," NBER Chapters,in: Misalignment of Exchange Rates: Effects on Trade and Industry, pages 39-76 National Bureau of Economic Research, Inc.
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  19. repec:hrv:faseco:32116841 is not listed on IDEAS
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