Why are Rates of Inflation so Low after Large Devaluations

56 Pages Posted: 19 Feb 2002

See all articles by Ariel T. Burstein

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: January 2002

Abstract

This Paper studies the behaviour 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 behaviour of prices.

Keywords: Inflation, devaluation, exchange rates

JEL Classification: F31

Suggested Citation

Burstein, Ariel T. and Eichenbaum, Martin and Tavares Rebelo, Sergio, Why are Rates of Inflation so Low after Large Devaluations (January 2002). CEPR Discussion Paper No. 3178. Available at SSRN: https://ssrn.com/abstract=301203

Ariel T. Burstein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
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Martin Eichenbaum

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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Evanston, IL 60208
United States
847-467-2329 (Phone)
847-491-5719 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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