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Large Devaluations and the Real Exchange Rate

  • Ariel Burstein
  • Martin Eichenbaum
  • Sergio Rebelo

In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2001), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a 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 assess the robustness of our findings by studying large real-exchange-rate appreciations, medium devaluations, and small exchange-rate movements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10986.

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Date of creation: Dec 2004
Date of revision:
Publication status: published as Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "Large Devaluations and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 742-784, August.
Handle: RePEc:nbr:nberwo:10986
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