NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Modeling Exchange-Rate Passthrough After Large Devaluations

Ariel Burstein, Martin Eichenbaum, Sergio Rebelo

NBER Working Paper No. 11638
Issued in September 2005
NBER Program(s):   EFG   IFM

Large devaluations are generally associated with large declines in real exchange rates. We develop a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations. The first force is sticky nontradable-goods prices. The second force is the impact of real shocks that often accompany large devaluations. We argue that sticky nontradable goods prices generally play an important role in explaining post-devaluation movements in real exchange rates. However, real shocks can sometimes be primary drivers of real exchange-rate movements.

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Document Object Identifier (DOI): 10.3386/w11638

Published: Burstein, Ariel & Eichenbaum, Martin & Rebelo, Sergio, 2007. "Modeling exchange rate passthrough after large devaluations," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 346-368, March.

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