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Mr. Sebastian Acevedo Mejia, Aliona Cebotari, Kevin Greenidge, and Geoffrey N. Keim

the increased investment providing a strong long-run effect on output, external balances and wealth. 13 DSGE Simulations: Real GDP (difference in pct. pts., relative to baseline) DSGE Simulations: Devaluation Effect on Real GDP (percent, relative to baseline) DSGE Simulations: Real GDP Under Various Policies with Devaluations (percent difference relative to baseline) 26. In model simulations, devaluations are less expansionary in small states as a result of a more subdued response of domestic demand, especially consumption

Jacques R. Artus

study lies in the methodological approach used. The study by the NIESR sought to estimate what the U. K. current balance would have been in the absence of devaluation, based on the extrapolation of trade equations estimated from data on the predevaluation period and “guesstimates” of what the movement of relative prices would have been in the absence of devaluation. The residual between the forecast thus generated and the actual outturn for the balance of payments was then defined as the devaluation effect. The shortcoming of this method is that the residual between

Mr. Michael Deppler

imports ( Chart 3 ), the peak in the first half of 1969 probably represents imports induced by the anticipated devaluation. The depressed level of imports after the devaluation may then be interpreted as a drawing down of stocks rather than an exchange rate effect. The subsequent observations may represent a modest exchange rate effect on imports. On the export side, a devaluation effect of 10–20 per cent is indicated. Before accepting these figures, however, one must introduce two considerations. First, there is a suggestion in Chart 1 that French competitiveness

Huixin Bi, Ms. Wenyi Shen, and Susan Yang Shu-Chun
This paper studies the main channels through which interest rate normalization has fiscal implications in the United States. While unexpected inflation reduces the real value of government liabilities, a rising policy rate increases government financing needs because of higher interest payments and lower real bond prices. After an initial decline, the real government debt burden rises even with higher tax revenues in an expansion. Given the current net debt-to-GDP ratio at around 80 percent, interest rate normalization leads to a negligible increase in the sovereign default risk of the U.S. federal government, despite a much higher federal debt-to-GDP ratio than the post-war historical average.
Mr. Sebastian Acevedo Mejia, Aliona Cebotari, Kevin Greenidge, and Geoffrey N. Keim
The paper investigates whether the macroeconomic effects of external devaluations have systematically different effects in small states, which are typically more open and less diversified than larger peers. Through several analytical approaches -- DSGE model, event study, and regression analysis -- it finds that the effects of devaluation on growth and external balances are not significantly different between small and large states, with both groups equally likely to experience expansionary or contractionary outcomes. However, the transmission channels are different: devaluations in small states are more likely to affect demand through expenditure compression, rather than expenditure-switching channels. In particular, consumption tends to fall more sharply in small states due to adverse income effects, thereby reducing import demand. Policy conclusions point to the importance of social safety nets, complementary wage and antiinflation policies, investment-boosting reforms, and attention to potential adverse balance sheet effects to ensure positive outcomes.
Mr. Andrew Feltenstein and Mr. Saleh M. Nsouli
This paper reviews briefly the controversy in the literature concerning the speed of adjustment and sequencing of reforms, and presents a model parameterized with Chinese data. The model is used to generate different policy simulations to illustrate some of the key issues in the debate on the speed and sequencing of reforms, and not to provide a basis for policy recommendations for China. The simulations highlight the importance of the criteria being used for determining speed and sequencing. The paper also underscores the limitations involved in attempting to derive conclusions from the model, given the complexity of the issues.
Mr. Sebastian Acevedo Mejia, Aliona Cebotari, Kevin Greenidge, and Geoffrey N. Keim