Contractionary devaluation in a heterogeneous agent model
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This paper explores the possibility and the robustness of contractionary devaluation in a dynamic heterogeneous agents model in which workers and capitalists make distinct optimizing decisions. Considering a small open developing economy that produces traded and non-traded goods, we assume that new capital goods are constructed by combining non-traded inputs with imported machines. Paying keen attention to the role of investment in the contractionary effects devaluation may exert, we trace both the impact responses and the transitional dynamics of the key macroeconomic variables of interest following a devaluation. Various simulation results show that, contrary to what is generally believed, even investment in the tradables sector falls on impact following a devaluation in many plausible cases. Investment in the nontradables sector falls as expected, and when taken together, aggregate investment almost always drops on impact. As a consequence of the fall in aggregate investment, real output tends to contract in the short run in most cases, whereas the balance of payments always improves following a devaluation. The results of this heterogeneous agent model are similar to those of the representative agent model, which confirms that the contractionary effects of devaluation, mainly through a slump in investment, are robust. A policy implication can be drawn that stabilization policy usually implemented with a devaluation should be complemented by appropriate investment boosting measures to maintain growth potential.
Abstract
This paper explores the possibility and the robustness of contractionary devaluation in a dynamic heterogeneous agents model in which workers and capitalists make distinct optimizing decisions. Considering a small open developing economy that produces traded and non-traded goods, we assume that new capital goods are constructed by combining non-traded inputs with imported machines. Paying keen attention to the role of investment in the contractionary effects devaluation may exert, we trace both the impact responses and the transitional dynamics of the key macroeconomic variables of interest following a devaluation. Various simulation results show that, contrary to what is generally believed, even investment in the tradables sector falls on impact following a devaluation in many plausible cases. Investment in the nontradables sector falls as expected, and when taken together, aggregate investment almost always drops on impact. As a consequence of the fall in aggregate investment, real output tends to contract in the short run in most cases, whereas the balance of payments always improves following a devaluation. The results of this heterogeneous agent model are similar to those of the representative agent model, which confirms that the contractionary effects of devaluation, mainly through a slump in investment, are robust. A policy implication can be drawn that stabilization policy usually implemented with a devaluation should be complemented by appropriate investment boosting measures to maintain growth potential.
참고문헌 (49)
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