NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Contractionary Devaluation, and Dynamic Adjustment of Exports and Wages

Felipe Larrain, Jeffrey Sachs

NBER Working Paper No. 2078
Issued in November 1986
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

Recent macroeconomic models of developing countries have emphasized the possibility of contactionary devaluations, stressing that domestic aggregate demand is likely to be reduced by the devaluations while aggregate supply may respond only slowly to the change in relative prices brought about by the devaluation. These results have been obtained in static models. In this paper we add wage and export-sector dynamics to the models of contractionary devaluation, and show that the effects which produce contractionary devaluations in the short term can produce limit cycles in the long run. The economy never returns to long-run equilibrium following a devaluation, but rather moves with fixed periodicity through successive phases of boom and bust.

download in pdf format
   (360 K)

download in djvu format
   (246 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2078

Users who downloaded this paper also downloaded* these:
Edwards w1676 Are Devaluations Contractionary?
Frankel w11508 Contractionary Currency Crashes in Developing Countries
Edwards and Montiel w2866 Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries
Sachs and McKibbin w1534 Macroeconomic Policies in the OECD and LDC External Adjustmemt
Eichengreen and Bordo w8716 Crises Now and Then: What Lessons from the Last Era of Financial Globalization
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us