DP3178 Why Are Rates of Inflation So Low After large Devaluations

Author(s): Ariel Tomas Burstein, Martin Eichenbaum, Sérgio Rebelo
Publication Date: January 2002
Keyword(s): devaluation, exchange rates, inflation
JEL(s): F31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3178

This Paper studies the behaviour of inflation after nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that distribution costs and substitution away from imports to lower quality local goods can account quantitatively for the post-devaluation behaviour of prices.