The Aftermath of Appreciations

53 Pages Posted: 26 Sep 1996 Last revised: 15 May 2000

See all articles by Ilan Goldfajn

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Rodrigo Valdés

Central Bank of Chile; Ministry of Finance, Chile

Date Written: July 1996


This paper empirically analyzes a broad range of real exchange rate appreciation episodes. The cases are identified after compiling a large sample of monthly multilateral real exchange rates from 1960 to 1994. The objective is twofold. First, the paper studies the dynamics of appreciations, avoiding the sample selection of analyzing exclusively the crisis (or devaluation) cases. Second, the paper analyzes the mechanism by which overvaluations are corrected. In particular, we are interested in the proportion of the reversions that occur through nominal devaluations, rather than cumulative inflation differentials. We calculate the probability of undoing appreciations without nominal depreciations for various degrees of misalignment. The overall conclusion is that it is very unlikely to undo large and medium appreciations without nominal devaluations.

Suggested Citation

Goldfajn, Ilan and Valdés, Rodrigo O., The Aftermath of Appreciations (July 1996). NBER Working Paper No. w5650. Available at SSRN:

Ilan Goldfajn (Contact Author)

Gávea Investimentos ( email )

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22431-050 Rio de Janeiro

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

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Rio de Janeiro, RJ 22453

Central Bank of Brazil ( email )

P.O. Box 08670
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61-4143232 (Phone)
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Rodrigo O. Valdés

Central Bank of Chile ( email )

Agustinas 1180
Research Department
+56 2 670 2000 (Phone)
+56 2 670 2231 (Fax)

Ministry of Finance, Chile

Teatinos 120
Santiago, 8340487

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