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Monetary and exchange rate policy in multisectoral economies

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  • Ahmed, Habib
  • Miller, Stephen M.

Abstract

We develop a two-sector economy where each sector is classified as classical/Keynesian (contract/noncontract) in the labor market and traded/nontraded in the product market. We consider the effects of changes in monetary and exchange rate policy on sectoral and aggregate prices and outputs for different sectoral characterizations. Duca (1987) shows that nominal wage rigidity facilitates the effectiveness of monetary policy even in the classical sector. We demonstrate that trade price rigidity provides a similar path for the effectiveness of monetary policy, in this case, even when both sectors are classical.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 49 (1997)
Issue (Month): 4 ()
Pages: 321-334

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Handle: RePEc:eee:jebusi:v:49:y:1997:i:4:p:321-334

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Web page: http://www.elsevier.com/locate/jeconbus

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References

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  1. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
  2. Paul Hallwood & Ronald MacDonald, 2008. "International Money and Finance," Working papers 2008-02, University of Connecticut, Department of Economics.
  3. T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
  4. Blinder, Alan S. & Mankiw, N. Gregory, 1984. "Aggregation and stabilization policy in a multi-contract economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 13(1), pages 67-86, January.
  5. Schultze, Charles L, 1984. "Cross-Country and Cross-Temporal Differences in Inflation Responsiveness," American Economic Review, American Economic Association, vol. 74(2), pages 160-65, May.
  6. R'dseth, Asbj'rn, 1979. " Macroeconomic Policy in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(1), pages 48-59.
  7. David D. VanHoose & John V. Duca, 1989. "Optimal monetary policy in a multisector economy with an economy-wide money market," Research Working Paper, Federal Reserve Bank of Kansas City 89-14, Federal Reserve Bank of Kansas City.
  8. Blomqvist, A. G., 1978. "Urban job creation and unemployment in LDCs : Todaro vs. Harris and Todaro," Journal of Development Economics, Elsevier, vol. 5(1), pages 3-18, March.
  9. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July.
  10. Craig, Gary A, 1981. "A Monetary Approach to the Balance of Trade," American Economic Review, American Economic Association, vol. 71(3), pages 460-66, June.
  11. Calvo, Guillermo A, 1978. "Urban Employment and Wage Determination in LDC's: Trade Unions in the Harris-Todaro Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(1), pages 65-81, February.
  12. Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-77, September.
  13. Duca, John V, 1987. "The Spillover Effects of Nominal Wage Rigidity in a Multisector Economy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 19(1), pages 117-21, February.
  14. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 777-93, August.
  15. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
  16. Dimitri G. Demekas, 1990. "Labor Market Segmentation in a Two-Sector Model of An Open Economy," IMF Working Papers 90/33, International Monetary Fund.
  17. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
  18. Waller, Christopher J, 1992. "The Choice of a Conservative Central Banker in a Multisector Economy," American Economic Review, American Economic Association, vol. 82(4), pages 1006-12, September.
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Cited by:
  1. Georgios Chortareas & Stephen Miller, 2004. "Optimal Central Banker Contracts and Common Agency," Public Choice, Springer, vol. 121(1), pages 131-155, October.

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