Work

Contractionary Effects of Devaluation and the Balance Sheet Effect in a Macroeconomic Model With Heterogeneous Firms

Year: 2026

Type: article

Abstract: ABSTRACT We propose a demand‐led heterogeneous firm macroeconomic model to study the impact of an exchange rate devaluation on output and financial stability. We simulate the model and find that, in the presence of foreign debt, a devaluation can have contractionary effects. This effect is mediated by the responsiveness of exports to the exchange rate and is attenuated when the traditional trade channel is stronger. Still, the balance sheet effect operates increasing indebtedness and financial instability.

Source: Metroeconomica

DOI: 10.1111/meca.70020

Authors: Lucca Gustafson Rodrigues, Lílian Rolim, Laura Carvalho

Institutions: Universidade de São Paulo, Universidade Estadual de Campinas (UNICAMP)

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,350

Funder: Coordenação de Aperfeiçoamento de Pessoal de Nível Superior