Devaluations and Consumption Smoothing

Paul Bergin

Review of International Economics, 2003, vol. 11, issue 5, 875-884

Abstract: The paper considers the effect of a nominal exchange rate devaluation on the current account, using an intertemporal model that highlights the interaction between leisure and consumption. An analytical solution demonstrates that household behavior may differ markedly from the simple consumption smoothing emphasized in most previous literature. This distinction has special significance for demand shocks, in which output rises through a rise in labor input and hence a fall in leisure. In particular, consumption tends to move closely with increased output in this context, so a devaluation tends not to improve the current account. This result may cast doubt on the effectiveness of competitive devaluations.

Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1046/j.1467-9396.2003.00423.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:11:y:2003:i:5:p:875-884

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0965-7576

Access Statistics for this article

Review of International Economics is currently edited by E. Kwan Choi

More articles in Review of International Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().