Competitive devaluations
Subtitle: a welfare-based approach
By: Giancarlo Corsetti ... [et al.].
Contributors: Corsetti, Giancarlo.; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 58; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 58.
Publisher: Federal Reserve Bank of New York
Published: 1999
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Devaluation of currency -- Econometric models.; Foreign exchange rates -- Econometric models.; International trade -- Econometric models.
Description: "This paper studies the mechanism of international transmission of exchange rate shocks within a three-country Center-Periphery model, providing a choice-theoretic framework for the policy analysis and empirical assessment of competitive devaluations.  If relative prices and terms of trade exhibit some flexibility conforming to the law of one price, a devaluation by one country is beggar-thy-neighbor relative to another country through its effects on cost-competitiveness in a third market.  Yet, due to direct bilateral trade between the two countries, there is a large range of parameter values for which a country is better off by maintaining a peg in response to its partner's devaluation.  If instead deviations from the law of one price are to be considered the dominant empirical paradigm, then the beggar-thy-neighbor effect based on competition in a third market may disappear.  However, a country's devaluation has a negative welfare impact on the economies of its trading partners based on the deterioration of their export revenues and profits and the increase in disutility from higher labor effort for any level of consumption"--Federal Reserve Bank of New York web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 2/3/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.