Economics, Econometrics and Finance
8 years ago

Devaluation boosts current account in short term, but may harm long-term.

IFAC Proceedings Volumes
Devaluation, Current Account and Capital Accumulation
Søren Beck Nielsen

Paper Summary

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The article looks at how a devaluation affects a small open economy. When wages are sticky, a short contract period after a devaluation can improve the current account, but a long contract period may worsen it. If investment adjustment costs are low, the current account may deteriorate. The study also examines the impact on terms of trade and foreign assets and capital stocks.