ABSTRACT
Hirschman (1949) showed that, if it occurs in the situation of an initial trade deficit, devaluation can have depressive effects even though the sum of imports’ and exports’ price-elasticities is superior to unity. DiazAlejandro (1963) suggested that similar consequences may appear if devaluation provokes a regressive distribution of income, that is, by benefiting those who have the highest marginal savings-propensity. Krugman and Taylor (1978) identified a third depressive effect, which appears when devaluation redistributes income in favour of the state, which-in the very short term-is supposed to have a very high propensity to save.
