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Large Devaluations and the Real Exchange Rate

Author

Listed:
  • Sergio Rebelo
  • Ariel Burstein
  • Martin Eichenbaum

Abstract

This paper argues that the primary force behind the large fall in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis is based on data from four large devaluation episodes: Mexico (1994), Korea (1997), Brazil (1999), and Argentina (2001). We conduct a more 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 then construct an open economy general equilibrium model that can account for the slow adjustment in nontradable good prices after a large devaluation

Suggested Citation

  • Sergio Rebelo & Ariel Burstein & Martin Eichenbaum, 2004. "Large Devaluations and the Real Exchange Rate," 2004 Meeting Papers 137, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:137
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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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