The Impact of Devaluation on Macroeconomic Performance

Taye, Haile

doi:10.1016/s0161-8938(97)00110-5

Cited by 18 publications

(15 citation statements)

References 19 publications

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“…This study has contributed to the literatures in such a way, it covers a period ranged from 1998.Q1-2010.Q4, during which Ethiopia was experiencing currency devaluation, and the study depends on a quarter data rather than annual data. The other paper, Taye (1999), found the effect of devaluation on the macroeconomic performance of Ethiopia is not sector specific and has time gap with this study.…”

Section: Introductioncontrasting

confidence: 80%

“…On the other hand, the empirical studies on this topic that focus on Ethiopia have been extremely limited. Taye (1999) as cited in El-Ramly and Abdel- Haliem, (2008), used a macro simulation approach to a macroeconomic model for Ethiopia found that devaluation has positive impact on the current account balance. The result reveals that devaluation reduces import and increase export, while it decreases output and employment.…”

Section: Empirical Literaturesmentioning

confidence: 99%

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The effect of currency devaluation on output: The case of ethiopian economy

Ayen¹

2014

J. Econ. Int. Finance

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This paper assesses the short and long run effects of currency devaluation on output growth in Ethiopia. The study is conducted by using quarterly time series data over the period ranging from 1998.Q1 to 2010.Q4 and employing a vector auto regression (VAR) model. By controlling the monetary and fiscal policies, it is found that currency devaluations are contractionary in the long run and neutral in the short-run. Other results are that monetary policy has positive effect on output growth, while total government expenditure has negative effect. Moreover, this study clarifies that devaluation explains a considerable part of real gross domestic product change in Ethiopia. Since the Ethiopian export is dominated by primary agricultural products, it is insensitive for the change in exchange rate; it is not also possible for the government to allow market forces to determine the value of Ethiopian birr. Policy intervention is needed to balance the adverse impact of exchange rate movements until the economy is well transformed from agricultural sector to industrial sector and then, the economy becomes less dependent on imported raw materials. Thus, monetary policy plays a bigger role since it affects the total output positively and significantly.

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Section: Introductioncontrasting

confidence: 80%

Section: Empirical Literaturesmentioning

confidence: 99%

The effect of currency devaluation on output: The case of ethiopian economy

Ayen¹

2014

J. Econ. Int. Finance

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“…Year aftermath of devaluations hinted that the benign relative price adjustment caused by devaluations could bring about a recession. For demand and supply side contractionary effects [Diaz-Alejandro (1963); Krugman and Taylor (1978); Barbone and Rivera-Batiz (1987)], the studies of supply side include [Bruno (1979); Gylfason and Schmid (1983); Van Wijnbergen (1986); Agenor (1991); Gylfason and Radetzki (1991) and Taye (1999)].…”

Section: Exchange Rate Volatility (Vol)mentioning

confidence: 99%

Impact of Exchange Rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003

Azid¹,

Jamil²,

Kousar³

2022

pdr

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“Exchange rate” is the price of one currency in relation to another. In a slightly different perspective, it expresses the national currency’s quotation in respect to foreign ones. Thus, exchange rate is a conversion factor, a multiplier or a ratio, depending on the direction of conversion. It is believed that if exchange rates can freely move, it may turn out to be the fastest moving price in the economy, bringing together all the foreign goods with it. In the existing literature, (most of the time) volatility comes with the exchange rate. Volatility is defined as “instability, fickleness or uncertainty” and is a measure of risk, whether in asset pricing, portfolio optimisation, option pricing, or risk management, and presents a careful example of risk measurement, which could be the input to a variety of economic decisions.

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“…This study therefore, tried to assess devaluation works via supply channel or demand channel by examining the effects of birr devaluation on the trade balance of Ethiopia using econometric approach as opposed to macroeconomic-simulation method that was used by Taye (1999). Taye did not examine the J-curve phenomenon for the trade balance of Ethiopia but this study does.…”

Section: Introductionmentioning

confidence: 99%

Birr devaluation and its effect on trade balance of Ethiopia: An empirical analysis

Eshetu¹

2017

J. Econ. Int. Finance

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This study examined the effect of Birr devaluation on trade balance of Ethiopia for the period 1970-2014 using the Vector Error Correction Model. The key results of the present study revealed that Birr devaluation deteriorates the trade balance of Ethiopia in the short run and improves it in the long run. Moreover, the result from the long and short run models showed that real effective exchange rate, money supply, domestic real income and term of trade are the major determinants of the trade balance of Ethiopia both in the short and long run. Besides the short and the long run model, the impulse response function and the descriptive analysis revealed that a J-curve phenomenon exists for the trade balance of Ethiopia. That means, the finding of this study showed that the Marshall-Lerner Condition holds only in the long run. So, the present study revealed that the elasticity, monetary and absorption theories are significant in explaining the trade balance of Ethiopia. The policy implication is that policies that encourage productivity improvements, diversification of the export sectors and expansion of import computing industries are alternative policies for devaluation. Moreover, government may need to be conservative in using devaluation (exchange rate policy) to improve trade balance as it may worsen the situation in the short run. Thus, the country on the process of industrialization, first needs to promote import computing industries and then, once the production gets its way, devaluation would be clear.

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The Impact of Devaluation on Macroeconomic Performance

Cited by 18 publications

References 19 publications

The effect of currency devaluation on output: The case of ethiopian economy

The effect of currency devaluation on output: The case of ethiopian economy

Impact of Exchange Rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003

Birr devaluation and its effect on trade balance of Ethiopia: An empirical analysis

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