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Devaluation Controversies in the Developing Countries: Lessons From the Bretton Woods Era

  • Sebastian Edwards
  • Julio A. Santaella

This paper uses historical data from the Bretton Woods era to analyze the effectiveness of devaluation-based adjustment programs in the developing countries. Forty eight major devaluations undertaken between 1954 and 1971 are investigated in detail in an effort to understand the circumstances leading to these adjustment programs, as well as their degree of effectiveness. An important aspect of the analysis is the distinction between devaluations undertaken within the context of IMF programs, and devaluations implemented independently. We find out that, in general, countries with lower income per capita and deeper economic problems tended to seek IMF support with greater frequency. Also, our analysis indicates that countries with left-wing leaning governments were less likely to embark on IMF programs. With respect to the effectiveness of these devaluation programs, our findings support the notion that devaluations accompanied by restrictive and consistent macroeconomic policies are an efficient and powerful adjustment tool. Our historical investigation also shows that, in general, countries that embarked on IMF stand-by programs tended to perform better than countries that adjusted on their own.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4047.

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Date of creation: Apr 1992
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Publication status: published as Retrospecive on the Bretton Woods System Eds. Michael Bordo and Barry Eichengreen UCP 1993
Handle: RePEc:nbr:nberwo:4047
Note: IFM
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  1. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
  2. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping hyperinflations past and present," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 122(1), pages 1-47, March.
  3. Jeffrey D. Sachs, 1989. "Developing Country Debt and the World Economy," NBER Books, National Bureau of Economic Research, Inc, number sach89-3, May.
  4. Dornbusch, Rudiger, 1990. "Credibility and Stabilization," CEPR Discussion Papers 454, C.E.P.R. Discussion Papers.
  5. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance. The International Financial System," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages -12 National Bureau of Economic Research, Inc.
  6. Eichengreen, Barry, 1990. "Relaxing the External Constraint: Europe in the 1930s," CEPR Discussion Papers 452, C.E.P.R. Discussion Papers.
  7. Buira, Ariel, 1983. "IMF financial programs and conditionality," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 111-136.
  8. Sebastian Edwards & Guido Tabellini, 1990. "Explaining Fiscal Policies and Inflation in Developing Countries," NBER Working Papers 3493, National Bureau of Economic Research, Inc.
  9. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
  10. Peter J Montiel & Bijan B. Aghevli & Mohsin S. Khan, 1991. "Exchange Rate Policy in Developing Countries; Some Analytical Issues," IMF Occasional Papers 78, International Monetary Fund.
  11. Jeffrey D. Sachs, 1989. "Introduction to "Developing Country Debt and the World Economy"," NBER Chapters, in: Developing Country Debt and the World Economy, pages 1-34 National Bureau of Economic Research, Inc.
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