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Exchange rate shocks and the current account under monopolistic competition: An intertemporal optimization model

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  • Hwan-Chyang Lin
  • Hui-Kuan Tseng

Abstract

This paper examines the current-account effect of a devaluation in a Chamberlinian model where both saving and investment are based on intertemporal optimization. It shows that devaluation tends to deteriorate the current account along the time horizon, leading to a reduction of the stock of foreign assets permanently. In contrast to recent work, these real effects do not rely on short-run disequilibrium in the goods or labor market. Besides, a temporary devaluation may generate hysteresis effects on both micro- and macro-economic aspects of a small economy. Copyright Kluwer Academic Publishers 1993

Suggested Citation

  • Hwan-Chyang Lin & Hui-Kuan Tseng, 1993. "Exchange rate shocks and the current account under monopolistic competition: An intertemporal optimization model," Open Economies Review, Springer, vol. 4(2), pages 133-150, June.
    • Handle: RePEc:kap:openec:v:4:y:1993:i:2:p:133-150
    DOI: 10.1007/BF01000516
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    References listed on IDEAS

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