Topic
Devaluation
About: Devaluation is a research topic. Over the lifetime, 6193 publications have been published within this topic receiving 126585 citations. The topic is also known as: depreciation.
Papers published on a yearly basis
1 / 2
Papers
1 Jan 1961
TL;DR: A theory of optimum currency areas is proposed in this paper, where the authors argue that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process.
Abstract: It is patently obvious that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process. It is, however, far easier to pose the problem and to criticize the alternatives than it is to offer constructive and feasible suggestions for the elimination of what has become an international disequilibrium system.' The present paper, unfortunately, illustrates that proposition by cautioning against the practicability, in certain cases, of the most plausible alternative: a system of national currencies connected by flexible exchange rates. A system of flexible exchange rates is usually presented, by its proponents,2 as a device whereby depreciation can take the place of unemployment when the external balance is in deficit, and appreciation can replace inflation when it is in surplus. But the question then arises whether all existing national currencies should be flexible. Should the Ghanian pound be freed to fluctuate against all currencies or ought the present sterling-area currencies remain pegged to the pound sterling? Or, supposing that the Common Market countries proceed with their plans for economic union, should these countries allow each national currency to fluctuate, or would a single currency area be preferable? The problem can be posed in a general and more revealing way by defining a currency area as a domain within which exchange rates are fixed and asking: What is the appropriate domain of a currency area? It might seem at first that the question is purely academic since it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement. To this, three answers can be given: (1) Certain parts of the world are undergoing processes of economic integration and disintegration, new experiments are being made, and a conception of what constitutes an optimum currency area can clarify the meaning of these experiments. (2) Those countries, like Canada, which have experimented with flexible exchange rates are likely to face particular problems which the theory of optimum currency areas can elucidate if the national currency area does not coincide with the optimum currency area. (3) The idea can be used to illustrate certain functions of currencies which have been inadequately treated in the economic literature and which are sometimes neglected in the consideration of problems of economic policy. A Theory of Optimum Currency Areas It is patently obvious that periodic balance-of-payments crises will remain an integral feature of the international economic system as long as fixed exchange rates and rigid wage and price levels prevent the terms of trade from fulfilling a natural role in the adjustment process. It is, however, far easier to pose the problem and to criticize the alternatives than it is to offer constructive and feasible suggestions for the elimination of what has become an international disequilibrium system.' The present paper, unfortunately, illustrates that proposition by cautioning against the practicability, in certain cases, of the most plausible alternative: a system of national currencies connected by flexible exchange rates. A system of flexible exchange rates is usually presented, by its proponents,2 as a device whereby depreciation can take the place of unemployment when the external balance is in deficit, and appreciation can replace inflation when it is in surplus. But the question then arises whether all existing national currencies should be flexible. Should the Ghanian pound be freed to fluctuate against all currencies or ought the present sterling-area currencies remain pegged to the pound sterling? Or, supposing that the Common Market countries proceed with their plans for economic union, should these countries allow each national currency to fluctuate, or would a single currency area be preferable? The problem can be posed in a general and more revealing way by defining a currency area as a domain within which exchange rates are fixed and asking: What is the appropriate domain of a currency area? It might seem at first that the question is purely academic since it hardly appears within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement. To this, three answers can be given: (1) Certain parts of the world are undergoing processes of economic integration and disintegration, new experiments are being made, and a conception of what constitutes an optimum currency area can clarify the meaning of these experiments. (2) Those countries, like Canada, which have experimented with flexible exchange rates are likely to face particular problems which the theory of optimum currency areas can elucidate if the national currency area does not coincide with the optimum currency area. (3) The idea can be used to illustrate certain functions of currencies which have been inadequately treated in the economic literature and which are sometimes neglected in the consideration of problems of economic policy.
5,507 citations
TL;DR: In this paper, a cross country index of real exchange rate distortion using the international comparison of prices prepared by Robert Summers and Alan Heston Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to domestic or international market.
Abstract: The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85 Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86% The real exchange rate distortion index supports the view that Asian countries are more outward oriented Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; ie overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative The growth rate/capita of Latin American and African countries would increase 15-21% with a shift to move outward oriented trade policies This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth
2,391 citations
TL;DR: In this article, the authors examine the empirical evidence on currency crises and propose a specific early warning system, which involves monitoring the evolution of several indicators that tend to exhibit unusual behavior in the periods preceding a crisis.
Abstract: The authors examine the empirical evidence on currency crises and propose a specific early-warning system. This system involves monitoring the evolution of several indicators that tend to exhibit unusual behavior in the periods preceding a crisis. An indicator exceeding a certain threshold value should be interpreted as a warning"signal"that a currency crisis may take place within the following 24 months. The threshold values are calculated to strike a balance between the risk of having many false signals and the risk of missing many crises. Within this approach, the variables with the best track record include exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices. The evidence does not support some of the other indicators that were considered, including imports, bank deposits,the difference between foreign and domestic real deposit interest rates, and the ratio of lending to deposit interest rates.
2,209 citations
TL;DR: This paper used a gravity model to assess the separate effects of exchange rate volatility and currency unions on international trade and found that currency unions like the European EMU may lead to a large increase in international trade, with all that that entails.
Abstract: Currency unions Their dramatic effect on international trade
A gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade. The panel data, bilateral observations for five years during 1970–90 covering 186 countries, includes 300+ observations in which both countries use the same currency. I find a large positive effect of a currency union on international trade, and a small negative effect of exchange rate volatility, even after controlling for a host of features, including the endogenous nature of the exchange rate regime. These effects, statistically significant, imply that two countries sharing the same currency trade three times as much as they would with different currencies. Currency unions like the European EMU may thus lead to a large increase in international trade, with all that that entails.
— Andrew Rose
1,938 citations
TL;DR: In this article, the authors propose a new mechanism linking trade and wage inequality in developing countries, the quality-upgrading mechanism, and investigate its empirical implications in panel data on Mexican manufacturing plants.
Abstract: This paper proposes a new mechanism linking trade and wage inequality in developing countries – the quality-upgrading mechanism – and investigates its empirical implications in panel data on Mexican manufacturing plants. In a model with heterogeneous plants and quality-differentiated goods, only the most productive plants in a country like Mexico enter the export market, they produce higher-quality goods to appeal to richer Northern consumers, and they pay high wages to attract and motivate a high-quality workforce. An exchange-rate devaluation leads initially more-productive, higher-wage plants to increase exports, upgrade quality, and raise wages relative to initially less-productive, lower-wage plants within each industry. Using the late-1994 peso crisis as a source of variation and a variety of proxies for plant productivity, I find that initially more-productive plants increased the export share of sales, white-collar wages, blue-collar wages, the relative wage of white-collar workers, and ISO 9000 certification more than initially less-productive plants during the peso crisis period, and that these differential changes were greater than in periods without devaluations before and after the crisis period. A factor-analytic strategy that relies more heavily on the theoretical structure and avoids the need to construct proxies finds similar results. These findings support the hypothesis that differential quality upgrading induced by the exchange rate shock tended to increase within-industry wage inequality.
1,464 citations
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| Year | Papers |
|---|---|
| 2025 | 72 |
| 2024 | 123 |
| 2023 | 213 |
| 2022 | 269 |
| 2021 | 73 |
| 2020 | 100 |