Because consumer prices and trade quantities tend to exhibit stronger rigidities than do nominal exchange rates, trade balances usually respond to currency appreciations and depreciations only after a time lag. This dynamic adjustment – depicted as correlations between deviations in a...

In 1952, Alexander provided an argument that since inflationary effects of depreciation could shift income from workers to producers it could lead to a decline in aggregate domestic consumption. This was based on the assumption that wages do not adjust fully to inflation and labor has a high MPC...