Potential Impacts of the Devaluation of Nepalese Currency: A General Equilibrium Approach
affiliation not provided to SSRN
Economic Systems, Vol. 34, No. 4, 2010
This paper measures the potential impacts of the devaluation of domestic currency of the small, developing, landlocked and transition South Asian economy of Nepal, which is lagging behind in policy studies. The impacts on growth, distribution, price changes in factor and product markets, and on selected macroeconomic features are measured. Using a computable general equilibrium model applied to social accounting matrix data, we conclude that devaluation is expansionary but mostly benefits the rich, thus leading to a more uneven income distribution. In general, the expansion of economic activities occurs in agricultural and industrial sectors, whereas services activities contract. However, when the rate of devaluation is high, the agricultural sector also starts contracting. To this typical developing economy, devaluation causes an improvement in saving investment and export/import ratios, whereas the budget deficit widens.
Keywords: Devaluation, Growth, Distribution, Macroeconomic features, CGE model
JEL Classification: C15, C68, D31, D33Accepted Paper Series
Date posted: July 30, 2011
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