IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Financial Frictions and Real Devaluations

  • Alvaro Aguirre
  • César Calderón
Registered author(s):

    In this paper I study the effects of real exchange rate devaluations on output performance using a sample of large devaluation episodes for a group of emerging and developed countries. I find that balance sheet effects, captured by the interaction between the real exchange rate devaluation and the level of external indebtedness of the country, have a significant and negative impact on output. Nevertheless, there is also evidence of a positive effect of the real devaluation associated to the traditional expansionary effect. For countries with large foreign-denominated external debt, the combined effect of the real exchange rate depreciation is likely to generate significant output losses in the short-run. However, in the medium term, the expansionary effect of the real devaluation tends to dominate the balance sheet effect, which implies a positive effect on output in the medium term. Finally, countries with deeper financial market experience lower output losses following a devaluation.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc318.pdf
    Download Restriction: no

    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 318.

    as
    in new window

    Length:
    Date of creation: May 2005
    Date of revision:
    Handle: RePEc:chb:bcchwp:318
    Contact details of provider: Postal: Casilla No967, Santiago
    Phone: (562) 670 2000
    Fax: (562) 698 4847
    Web page: http://www.bcentral.cl/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Lawrence J. Christiano & Christopher Gust & Jorge Roldos, 2002. "Monetary policy in a financial crisis," Working Paper 0204, Federal Reserve Bank of Cleveland.
    2. David Cook & Woon Gyu Choi, 2002. "Liability Dollarization and the Bank Balance Sheet Channel," IMF Working Papers 02/141, International Monetary Fund.
    3. Miguel A. Savastano, 1996. "Dollarization in Latin America; Recent Evidence and Some Policy Issues," IMF Working Papers 96/4, International Monetary Fund.
    4. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
    5. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
    6. Gian Maria Milesi-Ferrett & Assaf Razin, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Working Papers 6620, National Bureau of Economic Research, Inc.
    7. Michael B. Devereux & Philip R. Lane & Juanyi Xu, 2006. "Exchange Rates and Monetary Policy in Emerging Market Economies," Economic Journal, Royal Economic Society, vol. 116(511), pages 478-506, 04.
    8. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
    9. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    10. Ramkishen S. Rajan & Chung-Hua Shen, 2002. "Are crisis-induced devaluations contractionary?," Pacific Basin Working Paper Series 2002-06, Federal Reserve Bank of San Francisco.
    11. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    12. Arturo Galindo & Alejandro Micco, 2001. "Creditor Protection and Financial Cycles," IDB Publications (Working Papers) 6481, Inter-American Development Bank.
    13. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
    14. Enrique G. Mendoza & Katherine A. Smith, 2002. "Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The Finanical Mechanics of the 'Sudden Stop' Phenomenon," NBER Working Papers 9286, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:318. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.