Exchange Controls, Devaluations and Real Exchange Rates: The Latin American Experience

Sebastian Edwards

NBER Working Paper No. 2348 (Also Reprint No. r1230)
Issued in August 1987
NBER Program(s):   ITI   IFM

This paper deals with the anatomy of devaluation in Latin America. In an effort to understand the economics surrounding the causes and consequences of exchange rate crises, eighteen devaluation episodes that took place between 1962 and 1982 are investigated in detail. The paper focuses on: (1) the relation between (inconsistent) macroeconomics policies and exchange rate crises; (2) the role of real exchange rate overvaluation in the precipitation of balance of payment crises under pre-determined nominal exchange rates; (3) the role of exchange controls, multiple exchange rates and black markets in the period preceding devaluations; and (4) the effectiveness of nominal devaluations as a way to restore real exchange rate equilibrium. A distinction is made between stepwise devaluations and crawling peg regime. It was found that historically most stepwise devaluations have had difficulty in sustaining a real devaluation over the medium term. Countries that adopted a crawling peg have generally been able to maintain a higher real exchange rate. In many cases, however, this has been achieved at the cost of substantial inflation.

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Document Object Identifier (DOI): 10.3386/w2348


  • Edwards, Sebastian. "Exchange Controls, Devaluations and Real Exchange Rates: The Latin American Experience." Economic Development and Cultural Change, vol. 37, no. 3, pp. 457-494, (April 1989). ,
  • Edwards, Sebastian. "Tariffs, Capital Controls, And Equilibrium Real Exchange Rates," Canadian Journal of Economics, vol. 22, no. 1, (February 1989), pp. 79-92.

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