Devaluation, Devaluation Expectations and Price Dynamics

Abstract

This paper investigates the inflationary impact of actual and expected de valuations. The empirical evidence indicates that (1) the effects of devaluation on the price level are felt for at least three years; (2) in the majority of the cases, the ceteris paribus inflationary impac t of devaluation is mild; (3) significant differences concerning the devaluation-inflation relationship exist across countries but there i s little evidence to suggest that such differences exist, in general, across time within a country; and (4) the anticipation of devaluatio n can have severe inflationary consequences and can lead to price lev el overshooting. Copyright 1987 by The Review of Economic Studies Limited.

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