Economics Research Institute Study Paper
Utah State University Department of Economics
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This paper considers the effects of real exchange rate depreciation on stochastic agricultural producer prices. The conventional wisdom, that real depreciation stimulates tradables production, does not hold when one admits price uncertainty and producer income risk aversion. In fact, real depreciation only yields a stiinulative price signal (in the Sandmo sense of higher mean, lower variance) in the case of a partiGular subset of nontradables, "nontraditional exports" which have indeed responded vigorously to contemporary depreciation episodes. GARCH estimation of time..series price data on several commodities from Madagascar support the hypotheses generated by the analytical model.
Barrett, Christopher B., "The Effects of Real Exchange Rate Depreciation on Stochastic Producer Prices" (1995). Economic Research Institute Study Papers. Paper 58.