Modeling exchange rate passthrough after large devaluations

Ariel Burstein; Martin Eichenbaum; Sergio Rebelo

doi:10.1016/j.jmoneco.2005.08.013

Modeling exchange rate passthrough after large devaluations

Ariel Burstein, Martin Eichenbaum, Sergio Rebelo^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

50 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 language	English (US)
Pages (from-to)	346-368
Number of pages	23
Journal	Journal of Monetary Economics
Volume	54
Issue number	2
DOIs	https://doi.org/10.1016/j.jmoneco.2005.08.013
State	Published - Mar 2007

Funding

We thank Miles Kimball and an anonymous referee for their suggestions, and Pierpaolo Benigno, Mario Crucini, Andrew Levin, Carlos Vegh, Jessica Wachter, Ivan Werning, and Michael Woodford for their comments. We gratefully acknowledge financial support from the National Science Foundation and the Searle Foundation.

Keywords

Devaluations
Exchange rate
Passthrough
Sticky prices

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jmoneco.2005.08.013

Cite this

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title = "Modeling exchange rate passthrough after large devaluations",

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 = "Devaluations, Exchange rate, Passthrough, Sticky prices",

author = "Ariel Burstein and Martin Eichenbaum and Sergio Rebelo",

note = "Funding Information: We thank Miles Kimball and an anonymous referee for their suggestions, and Pierpaolo Benigno, Mario Crucini, Andrew Levin, Carlos Vegh, Jessica Wachter, Ivan Werning, and Michael Woodford for their comments. We gratefully acknowledge financial support from the National Science Foundation and the Searle Foundation. ",

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AU - Burstein, Ariel

AU - Eichenbaum, Martin

AU - Rebelo, Sergio

N1 - Funding Information: We thank Miles Kimball and an anonymous referee for their suggestions, and Pierpaolo Benigno, Mario Crucini, Andrew Levin, Carlos Vegh, Jessica Wachter, Ivan Werning, and Michael Woodford for their comments. We gratefully acknowledge financial support from the National Science Foundation and the Searle Foundation.

PY - 2007/3

Y1 - 2007/3

N2 - 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.

AB - 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.

KW - Devaluations

KW - Exchange rate

KW - Passthrough

KW - Sticky prices

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JO - Journal of Monetary Economics

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ER -

Modeling exchange rate passthrough after large devaluations

Abstract

Funding

Keywords

ASJC Scopus subject areas

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