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Aggregate Supply and Demand, the Real Exchange Rate and Oil Price Denomination

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Author Info
Yiannis Stournaras () (Bank of Greece and University of Athens)
Abstract

In an aggregate supply, aggregate demand model of an open economy with imperfect competition in labour and product markets, the effectiveness of monetary and fiscal policies depends on the degree of wage indexation, the exchange rate regime and the currency denomination of the international prices of raw materials, such as oil. In a two country world with a floating exchange rate, real consumer wage rigidity and the prices of imported raw materials fixed in the currency of Country 2, monetary policy is effective only in Country 2, but fiscal policy is relatively more effective in Country 1. These results may explain certain characteristics and have certain implications for economic policy in the US and the Eurozone.

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Paper provided by Bank of Greece in its series Working Papers with number 26.

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Length: 32 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:bog:wpaper:26

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Related research
Keywords: Open economy macroeconomics real exchange rate oil price denomination

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Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Rankin, Neil, 1987. "Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt," Economic Journal, Royal Economic Society, vol. 97(385), pages 65-85, March.
  3. Krugman, Paul, 2000. "How Complicated Does the Model Have to Be?," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 33-42, Winter.
  4. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August. [Downloadable!] (restricted)
    Other versions:
  5. David D. VanHoose, 2004. "The New Open Economy Macroeconomics: A Critical Appraisal," Open Economies Review, Springer, vol. 15(2), pages 193-215, 04. [Downloadable!]
  6. Branson, William H. & Rotemberg, Julio J., 1980. "International adjustment with wage rigidity," European Economic Review, Elsevier, vol. 13(3), pages 309-332, May. [Downloadable!] (restricted)
    Other versions:
  7. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 709-38, May. [Downloadable!] (restricted)
  8. Maurice Obstfeld., 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research (CIDER) Working Papers C01-121, University of California at Berkeley. [Downloadable!]
    Other versions:
  9. Moschos, D. & Stournaras, Y., 1998. "Domestic and foreign price links in an aggregate supply framework: The case of Greece," Journal of Development Economics, Elsevier, vol. 56(1), pages 141-157, June. [Downloadable!] (restricted)
  10. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Blackwell Publishing, vol. 92(2), pages 215-35.
    Other versions:
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
    • David G. Blanchflower & Andrew J. Oswald, 1990. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    • Andrew J. Oswald & David G. Blanchflower, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, 03.
  11. Rankin, N, 1986. "Debt Policy under Fixed and Flexible Prices," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 481-500, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eleni Angelopoulou, 2005. "The Comparative Performance of Q-type and Dynamic Models of Firm Investment: Empirical Evidence from the UK," Working Papers 27, Bank of Greece. [Downloadable!]
  2. Sven W. Arndt, 2006. "Regional Currency Arrangements in North America," Working Papers 40, Bank of Greece. [Downloadable!]
    Other versions:
  3. George S. Tavlas & P.A.V.B. Swamy, 2006. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Working Papers 34, Bank of Greece. [Downloadable!]
    Other versions:
  4. Hans Genberg, 2006. "Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?," Working Papers 41, Bank of Greece. [Downloadable!]
  5. Richard N. Cooper & Michael Bordo & Harold James, 2006. "What About a World Currency? Proposal for a Common Currency among Rich Democracies. One World Money, Then and Now," Working Papers 44, Bank of Greece. [Downloadable!]
  6. Christos Papazoglou, 2005. "Real Exchange Rate Dynamics and Output Contraction under Transition," Working Papers 29, Bank of Greece. [Downloadable!]
  7. Andreas S. Andreou & George A. Zombanakis, 2006. "Computational Intelligence in Exchange-Rate Forecasting," Working Papers 49, Bank of Greece. [Downloadable!]
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