IDEAS home Printed from https://ideas.repec.org/a/sae/amerec/v46y2002i2p80-87.html
   My bibliography  Save this article

The Policy Assignment Principle with Wage Indexation

Author

Listed:
  • Wen-Ya Chang
  • Ching-Chong Lai

Abstract

This paper is the first attempt to examine the role of alternative wage indexation schemes in coordination between fiscal and exchange rate policies to achieve given desirable macroeconomic targets under fixed exchange rates with perfect capital mobility. By introducing an explicit specification of the supply side similar to Sachs (1980) and Pitchford (1990) into the Mundell (1963) framework, we show that the crucial factor determining whether the mixture of fiscal and exchange rate policies will successfully work to stabilize output and official foreign reserves is the degree of wage indexation. Furthermore, we also show that such a finding under fixed exchange rates is robust when the analysis shifts to the system of a managed floating regime.

Suggested Citation

  • Wen-Ya Chang & Ching-Chong Lai, 2002. "The Policy Assignment Principle with Wage Indexation," The American Economist, Sage Publications, vol. 46(2), pages 80-87, October.
    • Handle: RePEc:sae:amerec:v:46:y:2002:i:2:p:80-87
    DOI: 10.1177/056943450204600208
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/056943450204600208
    Download Restriction: no
    File URL: https://libkey.io/10.1177/056943450204600208?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
    2. Phillip Lawler, 1996. "Real wage rigidity and anticipated fiscal policy," Journal of Economic Studies, Emerald Group Publishing, vol. 23(3), pages 3-17, September.
    3. Nyberg, Lars & Viotti, Staffan, 1979. "Limited Instrument Flexibility and the Assignment Principle," Oxford Economic Papers, Oxford University Press, vol. 31(2), pages 177-186, July.
    4. Turnovsky,Stephen J., 1977. "Macroeconomic Analysis and Stabilization Policy," Cambridge Books, Cambridge University Press, number 9780521291873.
    5. Kenen, Peter B., 1985. "Macroeconomic theory and policy: How the closed economy was opened," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 13, pages 625-677, Elsevier.
    6. David J. Ott & Attiat F. Ott, 1968. "Monetary and Fiscal Policy: Goals and the Choice of Instruments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(2), pages 313-325.
    7. Nyberg, Lars & Viotti, Staffan, 1976. "The balance of payments and optimal economic policy : The assignment problem revisited," Journal of International Economics, Elsevier, vol. 6(4), pages 337-346, November.
    8. Devereux, Michael B. & Purvis, Douglas D., 1990. "Fiscal policy and the real exchange rate," European Economic Review, Elsevier, vol. 34(6), pages 1201-1211, September.
    9. Jeffrey Sachs, 1980. "Wages, Flexible Exchange Rates, and Macroeconomic Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(4), pages 731-747.
    10. Levin, Jay H, 1972. "International Capital Mobility and the Assignment Problem," Oxford Economic Papers, Oxford University Press, vol. 24(1), pages 54-67, March.
    11. J. D. Pitchford, 1990. "Macroeconomic Policy and the Current Account in an Open Economy with Partial Wage Indexation," The Economic Record, The Economic Society of Australia, vol. 66(2), pages 157-170, June.
    12. Bean, Charles R, 1988. "Real Wage Rigidity and the Effect of an Oil Discovery," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 451-462, September.
    13. Ahtiala, Pekka, 1989. "A note on fiscal policy under flexible exchange rates," European Economic Review, Elsevier, vol. 33(7), pages 1481-1486, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahtiala, Pekka, 1998. "Monetary policy under flexible exchange rates: When is expansion contractionary?," International Review of Economics & Finance, Elsevier, vol. 7(4), pages 361-378.
    2. Pekka Ahtiala, 1998. "Fiscal Policy under Flexible Exchange Rates: When is Expansion Contractionary?," International Economic Journal, Taylor & Francis Journals, vol. 12(2), pages 17-34.
    3. Mr. James M. Boughton, 2002. "On the Origins of the Fleming-Mundell Model," IMF Working Papers 2002/107, International Monetary Fund.
    4. Stephen J. Turnovsky, 2011. "Stabilization Theory and Policy: 50 Years after the Phillips Curve," Economica, London School of Economics and Political Science, vol. 78(309), pages 67-88, January.
    5. Ahtiala, Pekka & Kanto, Antti, 2002. "Contractionary effects of expansionary fiscal policy: theory and tests," Economic Modelling, Elsevier, vol. 19(1), pages 137-152, January.
    6. Fuchun Jin, 2002. "A Model to Analyze the Macroeconomic Interdependence of Hong Kong with China and the United States," Working Papers 062002, Hong Kong Institute for Monetary Research.
    7. Harvey Lapan & Walter Enders, 1978. "Lags and the Assignment Problem: A Note," The American Economist, Sage Publications, vol. 22(2), pages 67-70, October.
    8. Pekka Ahtiala, 1981. "Economic Policy in an Open Macro Model with Rational Labor Behavior," Discussion Papers 487, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Obstfeld, Maurice, 1980. "Imperfect asset substitutability and monetary policy under fixed exchange rates," Journal of International Economics, Elsevier, vol. 10(2), pages 177-200, May.
    10. Enders, Walter & Lapan, Harvey, 1976. "Portfolio Balance and the Assignment Problem in an Interdependent World," ISU General Staff Papers 197601010800001026, Iowa State University, Department of Economics.
    11. James M. Boughton, 2003. "On the Origins of the Fleming-Mundell Model," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-1.
    12. Anne O. Krueger, 1998. "Whither the World Bank and the IMF?," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1983-2020, December.
    13. Chao, Chi-Chur & Hu, Shih-Wen & Lai, Ching-Chong & Tai, Meng-Yi & Wang, Vey, 2013. "Tariff-tax reform and exchange rate dynamics in a monetary economy," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 63-73.
    14. Wohltmann Hans-Werner & Clausen Volker, 2002. "Dynamische Effekte symmetrischer Nachfrageund Angebotspolitiken in einer asymmetrischen Währungsunion / Dynamic Effects of Symmetric Demand and Supply Side Policies in an Asymmetric Monetary Union," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(2), pages 230-257, April.
    15. Stephen Turnovsky, 1979. "The dynamics of an open economy with endogenous monetary and fiscal policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 115(2), pages 201-223, June.
    16. An, Lian & Kim, Gil & Ren, Xiaomei, 2014. "Is devaluation expansionary or contractionary: Evidence based on vector autoregression with sign restrictions," Journal of Asian Economics, Elsevier, vol. 34(C), pages 27-41.
    17. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
    18. Mădălin Viziniuc, 2017. "Potential Gains from Cooperation Between Monetary and Macroprudential Policies: The Case of an Emerging Economy," Eastern European Economics, Taylor & Francis Journals, vol. 55(5), pages 420-452, September.
    19. Christopher Erceg & Christopher Gust & David López-Salido, 2007. "The Transmission of Domestic Shocks in Open Economies," NBER Chapters, in: International Dimensions of Monetary Policy, pages 89-148, National Bureau of Economic Research, Inc.
    20. Brown, Malcolm C. & Crampton, Peter, 1997. "New Zealand policy strategies concerning the funding of general practitioner care," Health Policy, Elsevier, vol. 41(2), pages 87-104, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:amerec:v:46:y:2002:i:2:p:80-87. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://journals.sagepub.com/home/aex .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.