Short-term supply responde to a
            devaluation : a model's implications for primary
            commodity-exporting developing countries
The authors evaluate whether, in the
            short run, a devaluation could be contractionary in
            developing countries that export primary commodities. To do
            so, they use a model capturing the principal features of
            those economies. The two most important channels for
            transmitting the change in parity are (1) a supply effect
            with the supply response for tradables essentially a
            function of labor costs relative to the export commodity
            price, and (2) a demand effect, with the supply responds for
            the semitradabless essentially a function of the real wage.
            They simulated the model for a middle-income and a
            low-income country. The economic structure of the low-income
            country is less flexible (lower supply elasticity in
            production, lower elasticity of substitution between
            domestic production and imported inputs) than in the
            middle-income country. The model is meant not for use as a
            forecasting tool but to show the relative magnitude of
            various effects that are relevant in countries where the
            initial supply response to a devaluation would come mostly
            form increased production of an export commodity. In
            particular, the authors analyze the difference between the
            producer's response under "wrong" timing (the
            predevaluation price is the price signal on which production
            decisions are based) and under the presence of middlemen
            (rentiers in the export sector whose presence affects the
            devaluation's pass-through to procuders). Their
            findings: (a) For devaluation to succeed, there must be
            little wage indexing. Devaluation is more likely to be
            expansionary in the middle-income than in the low income
            country. (b) The devaluation's timing with the
            production cycle of the primary commodity export matters,
            especially in the middle-income country. (c) Debt relief is
            more effective where wage indexing is low and can help
            offset the negative effects of "wrong" timing by
            increasing output. But debt relief has an asymmetric effect
            on exportable and semitradables sectors, as the production
            of semitradables increases while that of exportable
            decreases. (d) With a tariff reduction, the devaluation
            implies more expansion in tradable. But this is not enough
            to compensate for the relative decrease in the growth rate
            of production of nontradables, so the growth of total output
            declines. (e) Finally unless the timing is
            "right," the effects of redistribution (which
            income being "transferred" from producers to
            middlemen with a higher propensity to consume imported
            goods) can have contractionary effects that cannot be offset
            by debt relief.