The distributional consequences of large devaluations

Javier Cravino and Andrei Levchenko

No 15, UBSCENTER - Working Papers from UBS International Center of Economics in Society - Department of Economics - University of Zurich

Abstract: We study the differential impact of large exchange rate devaluations on the cost of living at different points on the income distribution. Across product categories, the poor have relatively high expenditure shares in tradeable products. Within tradeable product categories, the poor consume lower-priced varieties. Changes in the relative price of tradeables and the relative prices of lower-priced varieties following a devaluation will affect the cost of the consumption basket of the low-income households relative that of the high-income households. We quantify these effects following the 1994 Mexican peso devaluation and show that their distributional consequences can be large. In the two years that follow the devaluation, the cost of the consumption basket of those in the bottom decile of the income distribution rose between 1.46 and 1.6 times more than the cost of the consumption basket 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: 2016-02
New Economics Papers: this item is included in nep-mon and nep-opm
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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 (2017)
Working Paper: The Distributional Consequences of Large Devaluations (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:uceswp:015

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