Why are Rates of Inflation so Low after Large Devaluations?
54 Pages Posted: 1 Feb 2002 Last revised: 2 Feb 2002
Date Written: January 2002
This paper studies the behavior of inflation after nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that distribution costs and substitution away from imports to lower quality local goods can account quantitatively for the post-devaluation behavior of prices.
Suggested Citation: Suggested Citation