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Large Devaluations and the Real Exchange Rate

  • Sergio Rebelo
  • Ariel Burstein
  • Martin Eichenbaum

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

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 137.

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Date of creation: 2004
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Handle: RePEc:red:sed004:137
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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