The effects of real exchange rate depreciation on stochastic producer prices in low-income agriculture
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This paper considers the effects of real exchange rate depreciation on stochastic agricultural producer prices in low-income
agriculture. Conventional wisdom, that real depreciation achieved through nominal currency devaluation stimulates tradables
production, does not universally hold in the presence of stochastic prices. In fact, real depreciation is only stimulative in two
cases - importables that remain importable and nontradables that become exportable. GARCH estimation of time-series price
data on several commodities from Madagascar support the hypotheses generated by the analytical model. © 1999 Elsevier
Science B.V. All rights reserved.