Adjustment to devaluation with money and nontraded goods |
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Authors: | Michael Connolly Dean Taylor |
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Affiliation: | University of Florida, Gainesville, FL 32611, U.S.A. |
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Abstract: | This paper analyzes the dynamics of adjustment to devaluation in a framework which highlights the role played by nontraded goods and money. We provide a specific analytical model of devaluation incorporating substitution effects in production and consumption as well as liquidity effects resulting from a stock-flow adjustment process. The analysis provides specific solutions for the time path of the balance of payments and the price of nontraded goods following devaluation. |
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