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From nominal devaluations to real depreciations

Carl Grekou ()

International Economics, 2019, vol. 157, issue C, 68-81

Abstract: In this article, we assess the factors that enable a nominal devaluation to lead to a real depreciation. To this end, we rely on panel data techniques in order to estimate the contribution over time of the key factors influencing devaluations' effectiveness —as well as their mutual interactions, for a sample of 57 devaluation episodes. The results of our econometric analysis suggest that several prerequisites —namely in terms of exchange rate misalignments and accompanying macroeconomic policies— must be met to ensure that devaluations will have the expected effect in terms of real depreciations. Furthermore, due to its inflationary impact, devaluation exerts a nonlinear effect on the dynamics of the real exchange rate, thus emphasizing the importance played by the size of the nominal adjustment.

Keywords: Currency misalignments; Emerging and developing countries; Macroeconomic policies; Nominal devaluations (search for similar items in EconPapers)
JEL-codes: C1 E6 F3 F41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.inteco.2018.07.004

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