Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

95

Issue

9

Publisher

Utah State University Department of Economics

Publication Date

1995

First Page

1

Last Page

81

Abstract

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.


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