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Demand Management Towards Internal and External Balance in an Open Economy with Centralized Wage Setting

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  • Torben M. ANDERSEN

    (University of Aarhus)

Abstract

The efficiency of demand management policies is considered in a two- sector model of a small and open economy with centralized wage bargaining. Differences in labour demand between sectors are shown to have qualitative implications for the responsiveness of wages to changes in out- put prices. Wage increases induced by increased demand in one sector may, thus, crowd out activity in other sectors, and this has important con- sequences for the effects of demand management policies on internal and external goals. An often proposed and practised policy of switching demand from tradeables to non-tradeables to ensure internal and external balance is extensively discussed.

Suggested Citation

  • Torben M. ANDERSEN, 1991. "Demand Management Towards Internal and External Balance in an Open Economy with Centralized Wage Setting," Discussion Papers (REL - Recherches Economiques de Louvain) 1991043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1991043
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