Modeling exchange rate passthrough after large devaluations

Ariel Burstein, Martin Eichenbaum, Sergio Rebelo*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

44 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)346-368
Number of pages23
JournalJournal of Monetary Economics
Volume54
Issue number2
DOIs
StatePublished - Mar 2007

Keywords

  • Devaluations
  • Exchange rate
  • Passthrough
  • Sticky prices

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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