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  3. American Economic Review
  4. November 2017
  5. The Distributional Consequences of Large Devaluations

The Distributional Consequences of Large Devaluations

  • Javier Cravino
  • Andrei A. Levchenko
American Economic Review
vol. 107, no. 11, November 2017
(pp. 3477-3509)
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Abstract

We study the impact of large exchange rate devaluations on the cost of living at different points on the income distribution. Poor households spend relatively more on tradeable product categories and consume lower-priced varieties within categories. Changes in the relative price of tradeables and of lower-priced varieties affect the cost of living of low-income relative to high-income households. We quantify these effects following the 1994 Mexican devaluation and show that they can have large distributional consequences. Two years post-devaluation, the cost of living for the bottom income decile rose 1.48 to 1.62 times more than for the top income decile.

Citation

Cravino, Javier, and Andrei A. Levchenko. 2017. "The Distributional Consequences of Large Devaluations." American Economic Review, 107 (11): 3477-3509. DOI: 10.1257/aer.20151551

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • D31 Personal Income, Wealth, and Their Distributions
  • E31 Price Level; Inflation; Deflation
  • F31 Foreign Exchange
  • O12 Microeconomic Analyses of Economic Development
  • O19 International Linkages to Development; Role of International Organizations
  • O24 Development Planning and Policy: Trade Policy; Factor Movement; Foreign Exchange Policy