Why Are Rates of Inflation So Low After Large Devaluations?

Ariel Burstein, Martin Eichenbaum, Sergio Rebelo

NBER Working Paper No. 8748
Issued in January 2002
NBER Program(s):The Economic Fluctuations and Growth Program, The International Finance and Macroeconomics Program, The Monetary Economics Program

This paper studies the behavior of inflation after nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that distribution costs and substitution away from imports to lower quality local goods can account quantitatively for the post-devaluation behavior of prices.

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Document Object Identifier (DOI): 10.3386/w8748

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