Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries
A small analytical model is developed to explore the relationship between the dynamics of macroeconomic adjustment and the timing of the implementation of an adjustment program featuring a nominal devaluation. The effects of postponing adjustment depend on the source of the original shock. For fiscal expansion, postponement implies a larger eventual devaluation and greater deviations of macroeconomic variables from their steady-state values. For adverse terms of trade shocks, postponement does not affect the size of the eventual devaluation but does magnify the degree of postdevaluation overshooting by key macroeconomic variables.
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Volume (Year): 36 (1989)
Issue (Month): 4 (December)
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