Is devaluation expansionary or contractionary? Empirical evidence from Fiji
Abstract:Devaluation has been traditionally promoted as an effective tool for increasing exports and improving the external position of the devaluing country if a nominal devaluation results in expenditure switching. In this article, our aim is to model the relationship between currency devaluations and output for Fiji. Following the approach in Bahmani et al. (2002), we extend the traditional model by incorporating other monetary and fiscal policy variables. We achieve our goal by using the recently developed bounds testing approach to cointegration and the autoregressive distributed lag model and find that devaluation is expansionary in the case of Fiji.
Document Type: Research Article
Affiliations: 1: School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Burwood, Victoria, Australia 2: Centre for Policy Studies, Monash University, Melbourne, Australia
Publication date: 2007-11-01