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The effect of real exchange rate changes on output: Jamaica's devaluation experience
Author(s) -
Rhodd Ruper T. G.
Publication year - 1993
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.3380050305
Subject(s) - devaluation , economics , disequilibrium , balance of payments , exchange rate , monetary economics , balance of trade , macroeconomics , keynesian economics , international economics , medicine , ophthalmology
Developing economies have relied upon devaluation to assist in the correction of fundamental disequilibrium in the balance of payment. As posited by conventional economic theory and proven by empirical research, a devaluation improves the balance of payments by reducing the demand for imports and increasing the supply of exports. However, recent research on devaluation insists that correction of the trade deficit occurs concurrently with income reduction. Using a three‐market Keynesian model, the conclusion reached in this research on the Jamaican economy is that a devaluation is contractionary in the short run and expansionary in the long run.