Are Devaluations Contractionary? Evidence from Turkey.” Journal of Economic Development 22(2

This paper examines the contractionary devaluation hypothesis in Turkey for 1960-1990 by dist nguishing the groweh effects of ant c pated and unant c pated devaluations. Account ng for supply shifts, the empir cal framework employed evaluates the effects of devaluation on output groweh on two grounds. First, the degree by wh ch real output groweh responds to given underlying demand shock. Second, the degree by wh ch aggregate demand curve shifts in response to unant c pated changes in the exchange rate. The empir cal results suggest that unant c pated devaluations have a posit ve impact on real economic act vity, wh le ant c pated devaluations do not exert any significant effect on output. The findings also highlight the w dely accepted notion that devaluations w ll be effect ve when accompanied by appropriate monetary and fiscal polic es. I. Introduct on Devaluations are usually an important component of conventional stab lization programs prompted by international inst tutions and are believed to be a primary policy option in balance of payments stab lization. Traditional views such as the elast c t es, absorption, and the Keynesian argue that devaluations have a posit ve effect on output.1 The monetary approach, however, argues that exchange rate changes influence real magnitudes mainly through the real balance effect i