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Large Devaluations and the Real Exchange Rate

  • Ariel Burstein
  • Martin Eichenbaum
  • Sergio Rebelo

This paper argues that the primary force behind the large fall in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis is based on data from four large devaluation episodes: Mexico (1994), Korea (1997), Brazil (1999), and Argentina (2001). We conduct a more detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We then construct an open economy general equilibrium model that can account for the slow adjustment in nontradable good prices after a large devaluation

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 113 (2005)
Issue (Month): 4 (August)
Pages: 742-784

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Handle: RePEc:ucp:jpolec:v:113:y:2005:i:4:p:742-784
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Ariel Burstein & Joao C. Neves & Sergio Rebelo, 2004. "Investment Prices and Exchange Rates: Some Basic Facts," NBER Working Papers 10238, National Bureau of Economic Research, Inc.
  2. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations," NBER Working Papers 7862, National Bureau of Economic Research, Inc.
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  18. James Meade, 1956. "THE PRICE MECHANISM and THE AUSTRALIAN BALANCE OF PAYMENTS," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 239-256, November.
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