Munich Personal RePEc Archive

Devaluation, Relative Prices, and International Trade

Reinhart, Carmen (1994): Devaluation, Relative Prices, and International Trade. Published in: IMF Staff Papers , Vol. 42, No. 2 (June 1995): pp. 290-312.

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Abstract

Devaluation is an integral part of adjustment in many developing countries, particularly relied upon by countries facing large external imbalances. A devaluation can only reduce trade imbalances if it translates to a real devaluation and if trade flows respond to relative prices in a significant and predictable manner. However, a recent strand in the empirical trade literature has questioned the existence of a stable relationship between trade flows and its traditional determinants. This paper re-examines the relationship between relative prices and imports and exports in a sample of 12 developing countries.

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