Working Paper: NBER ID: w11638
Authors: Ariel Burstein; Martin Eichenbaum; Sergio Rebelo
Abstract: 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.
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 |
|---|---|
| sticky nontradable goods prices (P22) | decline in real exchange rates (F31) |
| real shocks (F31) | decline in real exchange rates (F31) |
| real shocks (F31) | economic activity (E20) |
| real shocks (F31) | inflation (E31) |
| sticky prices (D41) | price stability (E31) |