Large Devaluations and the Real Exchange Rate

Posted: 10 Aug 2005

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)

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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 prices of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2002), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentina case using disaggregated consumer price index 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. Journal of Political Economy, Vol. 113, pp. 742-784, August 2005. Available at SSRN: https://ssrn.com/abstract=772076

Ariel T. Burstein

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

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Martin Eichenbaum (Contact Author)

Northwestern University ( email )

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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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