| Abstract: | This paper considers the effects of real exchange rate depreciation on stochastic agricultural producer prices in low-income agriculture. Conventional wisdom, that real depreciation achieved through nominal currency devaluation stimulates tradables production, does not universally hold in the presence of stochastic prices. In fact, real depreciation is only stimulative in two cases–importables that remain importable and nontradables that become exportable. GARCH estimation of time-series price data on several commodities from Madagascar support the hypotheses generated by the analytical model. |
