American Economic Review Vol. 107 No. 11 2017

The Distributional Consequences of Large Devaluations

Javier Cravino¹; Andrei A. Levchenko²

¹ University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109, and NBER (email: ) · ² University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109, NBER, and CEPR (email: )

Abstract

We study the impact of large exchange rate devaluations on the cost of living at different points on the income distribution. Poor households spend relatively more on tradeable product categories and consume lower-priced varieties within categories. Changes in the relative price of tradeables and of lower-priced varieties affect the cost of living of low-income relative to high-income households. We quantify these effects following the 1994 Mexican devaluation and show that they can have large distributional consequences. Two years post-devaluation, the cost of living for the bottom income decile rose 1.48 to 1.62 times more than for the top income decile.

DOI

10.1257/aer.20151551

Volume

107

Issue

11

Pages

3477-3509

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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