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Devaluation, Wealth Effects, and Relative Prices
The American Economic Review
  • Harvey Lapan, Iowa State University
  • Walter Enders, Iowa State University
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The emergence of the portfolio balance approach 1 has led to a reformulation of the causes of balance-of-trade and payments disequilibria. According to this approach, balance-of-trade deficits and surpluses reflect discrepancies between desired and actual wealth holdings; while balance-of­ payments deficits and surpluses reflect discrepancies between desired and actual money holdings. Thus, balance-of-trade and payments disequilibria are viewed as representing disequilibria within the asset markets. Using this framework several authors2 have examined the self-correcting nature of disequilibria within the balance­ of-payments accounts and the ability of a devaluation to reduce the magnitude of a disequilibrium.

This is an article from The American Economic Review 68 (1978): 601. Posted with permission.

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American Economic Association
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Harvey Lapan and Walter Enders. "Devaluation, Wealth Effects, and Relative Prices" The American Economic Review Vol. 68 Iss. 4 (1978) p. 601 - 613
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