Exchange rate shocks and the current account under monopolistic competition: An intertemporal optimization model

Hwan Lin and Hui-Kuan Tseng

Open Economies Review, 1993, vol. 4, issue 2, 133-150

Abstract: This paper examines the current-account effect of a devaluation in a Chamberlinian model where both saving and investment are based on intertemporal optimization. It shows that devaluation tends to deteriorate the current account along the time horizon, leading to a reduction of the stock of foreign assets permanently. In contrast to recent work, these real effects do not rely on short-run disequilibrium in the goods or labor market. Besides, a temporary devaluation may generate hysteresis effects on both micro- and macro-economic aspects of a small economy. Copyright Kluwer Academic Publishers 1993

Keywords: devaluation; entry; current account; hysteresis (search for similar items in EconPapers)
Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:4:y:1993:i:2:p:133-150

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DOI: 10.1007/BF01000516

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