Abstract/Index

This paper examines the effects of exchange-rate policies in an overlapping-generations small open economy facing perfect capital mobility. We find that a once-and-for-all devaluation spurs wealth formation and leads to a current account surplus, while a sustained increase in the rate of devaluation leaves nonhuman wealth and the current account balance unperturbed. Our results differ substantially from those obtained in homologous small open economies with infinite horizons.