Details

Subject(s)

• Devaluation of currency [Browse]
• Economic history [Browse]

Author

• Montiel, Peter J., 1951- [Browse]
• National Bureau of Economic Research [Browse]

Series

Working paper series (National Bureau of Economic Research) ; number 2866. [More in this series]

Summary note

This paper develops our analytical model to explore the relationship between the dynamics of macroeconomic adjustment and the timing of the implementation of an adjustment program featuring an official devaluation. The effects of postponing adjustment depend on the source of the original shock. In the case of fiscal expansion, postponement implies a larger eventual official devaluation and greater deviations of macroeconomic variables from their steady-state values. For adverse terms of trade shocks, postponement does not affect the size of the eventual official devaluation, but does magnify the amount of post-devaluation overshooting by key macroeconomic variables.

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