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Modeling Exchange Rate Passthrough After Large Devaluations


  • Burstein, Ariel Tomas
  • Eichenbaum, Martin
  • Rebelo, Sérgio


Large devaluations are generally associated with large declines in real exchange rates. We develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations. The first force is sticky nontradable goods prices. The second force is the impact of real shocks that often accompany large devaluations. We argue that sticky nontradable goods prices generally play an important role in explaining post-devaluation movements in real exchange rates. However, real shocks can sometimes be primary drivers of real exchange rate movements.

Suggested Citation

  • Burstein, Ariel Tomas & Eichenbaum, Martin & Rebelo, Sérgio, 2005. "Modeling Exchange Rate Passthrough After Large Devaluations," CEPR Discussion Papers 5250, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5250

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    References listed on IDEAS

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    More about this item


    devaluations; exchange rate; passthrough; sticky prices;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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