Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries

Sebastian Edwards and Peter Montiel

No 2866, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops our analytical model to explore the relationship between the dynamics of macroeconomic adjustment and the timing of the implementation of an adjustment program featuring an official devaluation. The effects of postponing adjustment depend on the source of the original shock, In the case of fiscal expansion, postponement implies a larger eventual official devaluation and greater deviations of macroeconomic variables from their steady-state values. For adverse terms of trade shocks, postponement does not affect the size of the eventual official devaluation, but does magnify the amount of post-devaluation overshooting by key macroeconomic variables.

Date: 1989-02
Note: ITI IFM
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Citations: View citations in EconPapers (18)

Published as Sebastian Edwards & Peter J. Montiel, 1989. "Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries," Staff Papers - International Monetary Fund, vol 36(4).

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Journal Article: Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries (1989)
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