Are devaluations contractionary in Asia?

MOHSEN BAHMANI-OSKOOEE,SOUPHALA CHOMSISENGPHET &MAGDA KANDIL

Pages 69-82 | Published online: 08 Dec 2014

The main purpose of this paper is to determine empirically whether currency

depreciation is expansionary or contractionary in Asian countries. It is argued
that by disrupting the operation of the financial sector and by introducing
uncertainty among consumers and investors, currency depreciation could be
contractionary. A reduced-form model is introduced and tested by means of
cointegration analysis. The results support our theoretical argument that in many
Asian countries depreciation is contractionary.
Keywords: Asia, cointegration, contractionary devaluations