The Distributional Consequences of Large Devaluations

Andrei Levchenko and Javier Cravino

No 12035, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the impact of large exchange rate devaluations on the cost of living at different points on the income distribution. Poor households spend relatively more on tradeable product categories, and consume lower-priced varieties within categories. Changes in the relative price of tradeables and of lower-priced varieties affect the cost of living of low-income relative to high-income households. We quantify these effects following the 1994 Mexican devaluation and show that they can have large distributional consequences. Two years post-devaluation, the cost of living for the bottom income decile rose 1.48 to 1.62 times more than for the top income decile.

Keywords: Exchange rates; Large devaluations; Distributional effects; Consumption baskets (search for similar items in EconPapers)
JEL-codes: F31 F61 (search for similar items in EconPapers)
Date: 2017-05
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Citations: View citations in EconPapers (62)

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Related works:
Journal Article: The Distributional Consequences of Large Devaluations (2017)
Working Paper: The Distributional Consequences of Large Devaluations (2017)
Working Paper: The distributional consequences of large devaluations (2016)
Working Paper: The Distributional Consequences of Large Devaluations (2015)
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