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From nominal devaluations to real depreciations

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  • Grekou, Carl

Abstract

In this article, we assess the factors that enable a nominal devaluation to lead to a real depreciation. To this end, we rely on panel data techniques in order to estimate the contribution over time of the key factors influencing devaluations' effectiveness —as well as their mutual interactions, for a sample of 57 devaluation episodes. The results of our econometric analysis suggest that several prerequisites —namely in terms of exchange rate misalignments and accompanying macroeconomic policies— must be met to ensure that devaluations will have the expected effect in terms of real depreciations. Furthermore, due to its inflationary impact, devaluation exerts a nonlinear effect on the dynamics of the real exchange rate, thus emphasizing the importance played by the size of the nominal adjustment.

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  • Grekou, Carl, 2019. "From nominal devaluations to real depreciations," International Economics, Elsevier, vol. 157(C), pages 68-81.
    • Handle: RePEc:eee:inteco:v:157:y:2019:i:c:p:68-81
    DOI: 10.1016/j.inteco.2018.07.004
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    1. Florian Morvillier, 2020. "Robustness of the Balassa-Samuelson effect: evidence from developing and emerging economies," EconomiX Working Papers 2020-18, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    Currency misalignments; Emerging and developing countries; Macroeconomic policies; Nominal devaluations;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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