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Devaluations, output and the balance sheet effect: a structural econometric analysis

  • Camilo E Tovar

This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explicit exogenous devaluationary policy shock. Ceteris paribus, a devaluation is found to be expansionary. Output contractions in South Korea should then be associated with a different shock such as an adverse shock on the international interest rate or on export demand.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 215.

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Length: 44 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:bis:biswps:215
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