The Aftermath of Appreciations

Ilan Goldfajn and Rodrigo Valdés

The Quarterly Journal of Economics, 1999, vol. 114, issue 1, 229-262

Abstract: This paper empirically analyzes a broad range of real exchange rate appreciation episodes. The objective is twofold. First, the paper studies the dynamics of appreciations, using a sample that is not limited to cases that end in crisis (or devaluation). Second, the paper analyzes the mechanism by which overvaluations are corrected. In particular, for various degrees of misalignment we calculate the proportion of the reversions that occur through nominal devaluations rather than through cumulative inflation differentials. The overall conclusion is that in most cases large and medium appreciations are reversed with nominal devaluations.

Date: 1999
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Related works:
Working Paper: The Aftermath of Appreciations (1997)
Working Paper: The Aftermath of Appreciations (1996)
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