Devaluations and Credibility in Structural Adjustment Policy

In: Journal of policy modeling: JPMOD ; a social science forum of world issues, Band 12, Heft 4, S. 659-669

Abstract

General equilibrium models of three developing countries -- Indonesia, Bolivia, & Cameroon -- are studied to examine the effects of a major structural adjustment policy: currency devaluation. Frameworks traditionally used to analyze structural adjustment issues fail to incorporate an endogenous investment response, which is important because it can reverse standard results & can alter the long-term growth effects of adjustment policy. Both the structural & aggregate investment dimensions are included by incorporating two-period optimization into a multisectoral computable general equilibrium (CGE) model in which the composition of aggregate demand responds to factor prices through their effect on investment decisions. The structure of output & trade similarly respond to macroeconomic forces, as well as to relative prices. 3 Tables, 8 References. Adapted from the source document.