This dissertation advances a model which assumes extreme openness characterised by the absence of nontradables. The pivotal relative price is the real wage which is of central importance in the analysis of devaluation. The model incorporates a simple supply function on the basis that the supply response to a devaluation cannot be taken for granted because of structural factors and unstable expectations characteristic of the transitional period following a devaluation. The effects of devaluation depend on a combination of factors among which are highlighted capitalists' expectations of future stability and the constraints on disabsorption. Our analysis underlines the need for financial assistance to sustain the adjustments associated with devaluation episodes. An econometric application of this model to Jamaica finds devaluation to be adverse both with respect to output growth and the trade balance.

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