EconPapers    
Economics at your fingertips  
 

External Devaluations: Are Small States Different?

Kevin Greenidge, Aliona Cebotari, Geoffrey Keim and Sebastian Acevedo

No 2015/240, IMF Working Papers from International Monetary Fund

Abstract: The paper investigates whether the macroeconomic effects of external devaluations have systematically different effects in small states, which are typically more open and less diversified than larger peers. Through several analytical approaches -- DSGE model, event study, and regression analysis -- it finds that the effects of devaluation on growth and external balances are not significantly different between small and large states, with both groups equally likely to experience expansionary or contractionary outcomes. However, the transmission channels are different: devaluations in small states are more likely to affect demand through expenditure compression, rather than expenditure-switching channels. In particular, consumption tends to fall more sharply in small states due to adverse income effects, thereby reducing import demand. Policy conclusions point to the importance of social safety nets, complementary wage and antiinflation policies, investment-boosting reforms, and attention to potential adverse balance sheet effects to ensure positive outcomes.

Keywords: WP; devaluation effect; devaluation inflation spike; one-off devaluation event; expansionary devaluation; U.S. dollar; external devaluation; small states; devaluation investment; devaluation outcome; devaluation case; Consumption; Depreciation; Inflation; Exchange rates; Currencies; Global; Africa; Western Hemisphere (search for similar items in EconPapers)
Pages: 38
Date: 2015-11-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=43410 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

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:imf:imfwpa:2015/240

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().

 
Page updated 2023-02-04
Handle: RePEc:imf:imfwpa:2015/240