Why Are Rates of Inflation So Low After Large Devaluations?

Abstract

This paper studies the behavior of inflation after nine large post-1990 contractionary devaluations. A salient feature of the data is that inflation is low relative to the rate of devaluation. We argue that the distribution costs and substitution away from imports to lower quality local goods can account quantitatively for the post-devaluation behavior of prices.inflation, devaluation, exchange rates