Paul Bergin, Giancarlo Corsetti, 11 January 2016

Competitive devaluation is a long-standing idea in international macroeconomic theory. This column takes a step back from the current debate and assesses a different perspective on monetary and exchange rate policies. Strategic behaviour is shown to be detrimental from a global welfare perspective. Due to negative spillovers elsewhere, devaluations invite retaliation – which in turn reduces manufacturing at the global level. Monetary policy can provide a non-negligible contribution to fostering comparative advantage in high-value branded manufacturing goods by pursuing efficient macroeconomic stabilisation.

Javier Cravino, Andrei Levchenko, 23 November 2015

Large exchange rate swings remain a prominent and recurring feature of the world economy. This column uses household consumption patterns to examine the distributional impact of the devaluation of the peso during Mexico’s ‘Tequila Crisis’. Cost of living increases are found to be 1.25 to 1.6 times higher for the poor compared to the rich. In the interests of equity, exchange rate policy should take account of such distributional impacts.

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