Economics Research Institute Study Paper
Utah State University Department of Economics
Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at firstname.lastname@example.org.
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.