The Contractionary Short‐Run Effects of Nominal Devaluation in Developing Countries: Some Neglected Nuances

Arslan Razmi
2007 International Review of Applied Economics  
This paper extends the framework developed by Krugman and Taylor (1978) to take into account nuances related to the evolving structure of international trade. In particular, the increasing presence of transnational production chains and differential pricing behavior of developing country exports destined for industrial and developing countries are accommodated. Individual country and panel data pass-through estimates are then provided to justify the validity of the latter extension. The
more » ... ension. The theoretical likelihood of contractionary short-run effects of nominal devaluations is shown to be positively related to the proportion of a country's exports destined for other developing countries. The policy implications emerging from the extended framework underline the need to take into account these nuances of international trade while designing exchange rate policies. JEL Codes: F12, F14, F23, F41
doi:10.1080/02692170701474611 fatcat:pr44ro5bybb4je2plbs27kmgsy