Large Devaluations and the Real Exchange Rate

49 Pages Posted: 17 Jan 2005 Last revised: 10 Jul 2010

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)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2004

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

Burstein, Ariel T. and Eichenbaum, Martin and Tavares Rebelo, Sergio, Large Devaluations and the Real Exchange Rate (December 2004). NBER Working Paper No. w10986. Available at SSRN: https://ssrn.com/abstract=637483

Ariel T. Burstein

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

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Martin Eichenbaum (Contact Author)

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Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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