Working Paper: NBER ID: w10986
Authors: Ariel Burstein; Martin Eichenbaum; Sergio Rebelo
Abstract: In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2001), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We assess the robustness of our findings by studying large real-exchange-rate appreciations, medium devaluations, and small exchange-rate movements.
Keywords: No keywords provided
JEL Codes: F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| slow adjustment in the prices of nontradable goods (P22) | significant drop in real exchange rates (F31) |
| nontradable goods prices (F16) | variations in real exchange rates (F31) |
| inflation rate for nontradable goods remains low (E31) | dramatic fall in dollar prices of nontradable goods (E31) |
| change in nontradable goods prices relative to pure-traded goods prices (F16) | main source of real exchange rate movements after large devaluations (F31) |
| frequency of price adjustments for goods (E30) | dynamics of price changes (E30) |
| flight from quality (L15) | shift towards lower-quality goods post-devaluation (F31) |