Why Are Crisis-Induced Devaluations Contractionary? Exploring Alternative Hypotheses

Ramkishen Rajan and Chung-Hua Shen ()
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Chung-Hua Shen: Department of Money and Banking, Postal: National Chengchi University Taipei, Taiwan,

Journal of Economic Integration, 2006, vol. 21, 526-550

Abstract:

Why are some currency crises followed by economic contractions while others are not? This paper is an attempt at answering this query. In particular, we investigate two closely related questions. First, we explore whether there is a difference in the output effects of a devaluation during “normal” periods versus crises ones; after all, during non-crisis periods, real exchange devaluation is seen as an important policy option for promoting exports and output growth. Yet, the literature has not made a distinction between crisis and non-crisis periods. To preview the main conclusion, we find that the contractionary effects tend to exist only during the crisis period. Building on this, we go on to explore the factors that cause a crisis-induced devaluation to be contractionary.

Keywords: Capital flows; Currency crisis; Contractionary devaluation; Speculative attack (search for similar items in EconPapers)
JEL-codes: F34 F41 F42 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0368

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