A New Approach to Currency Depreciation
Currency depreciation has been studied conventionally in terms of three hypotheses-the elasticities approach, the monetary approach and the absorption approach. In this paper we offer another hypothesis called the price approach, wherein the balance of payment disequilibrium results from an inappropriate price level. Specifically, a country has a trade surplus if the equilibrium price level is below that compatible with balanced trade; by contrast, it has a trade deficit if the price level is above that compatible with balanced trade. We illustrate the price approach with the experience of currency devaluations that have occurred in emerging markets since 1997. Copyright © 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Ltd.
Year of publication: |
2008
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Authors: | Batra, Ravi ; Beladi, Hamid |
Published in: |
Review of Development Economics. - Wiley Blackwell. - Vol. 12.2008, 4, p. 683-693
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Publisher: |
Wiley Blackwell |
Saved in:
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