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Large Devaluations and the Real Exchange Rate

Author

Listed:
  • Ariel Burstein

    (University of California at Los Angeles)

  • Martin Eichenbaum

    (Northwestern University, NBER, and Federal Reserve of Chicago.)

  • Sergio Rebelo

    (Northwestern University, NBER, and CEPR.)

Abstract

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.

Suggested Citation

  • Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2004. "Large Devaluations and the Real Exchange Rate," RCER Working Papers 513, University of Rochester - Center for Economic Research (RCER).
  • Handle: RePEc:roc:rocher:513
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    More about this item

    Keywords

    Claims problems; Replication; Random arrival rule; Proportional rule; Minimal overlap rule; Constrained equal losses rule.;
    All these keywords.

    JEL classification:

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

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