This paper aims to analyze the relation among exchange rate, distribution and economic growth from a short-term Keynesian-structuralist perspective. The domestic absorption is the cornerstone of the analysis, inasmuch as an exchange rate devaluation leads to an expansionist result in the profit-led accumulation regime and a contractionist outcome in the wage-led case in the traditional approach. The sophistication of the model proposed in this paper comprises the introduction of indirect effects upon the investment function which emanate from distributional shifts. Besides the accelerator effect and the profit share, capital accumulation also responds to the innovation rate, credit availability and expectations regarding the price level. Nevertheless, the introduction of new mechanisms led to ambiguous results. Since the analytical solution turned out to be quite complex, numerical simulation seemed appropriate. This method revealed that devaluation may have positive effects upon the economic performance in the wage-led case. Thus it was possible to reconcile the available empirical evidence with a consistent theoretical model. This result in turn has important implications for the conduction of economic policy.
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Length: 34 pages Date of creation: Apr 2009 Date of revision: Handle: RePEc:cdp:texdis:td350
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