Devaluation (Levels versus Rates) and Balance of Payments in a Cash-in-Advance Economy

Alberto Petrucci ()

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper investigates the consequences of the currency devaluation, both in levels and rates, on the balance of payments in a cash-in-advance economy with finite horizons, endogenous capital accumulation and international capital immobility. In this context, a once and for all currency devaluation induces a balance of payments surplus, whereas a sustained increase in the rate of devaluation produces, in principle, an ambiguous effect on the balance of payments. If however non-restrictive assumptions on some structural parameters are made, an increase in the devaluation rate leads to a balance of payments surplus, the exact opposite of Calvo's result (1981).

Keywords: Devaluation; balance of payments; cash-in-advance constraint; overlapping generations (search for similar items in EconPapers)
JEL-codes: E21 E62 (search for similar items in EconPapers)
Pages: 26
Date: 2003-05-08
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Working Paper: Devaluation (levels versus rates) and balance of payments in a cash-in-advance economy (2003)
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