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Macro-Economic Adjustment With Import Price Shocks: Real and Monetary Aspects

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  • Michael Bruno
  • Jeffrey Sachs
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    Abstract

    In this paper we explore in detail the various ways by which the introduction of intermediate imports affects the comparative statics and the dynamics of adjustment in an open economy. The importance of integrating the role of intermediate imports into a theory of macro-economic adjustment derives from the particular set of events that have affected the industrial economies in the 1970's -- the unprecedented rise in raw materials prices, in particular the oil price shock, and the concomitant inflation and widespread unemployment. The analysis lays out in detail the separate workings of the commodity labor and exchange rate markets, under various adjustment mechanisms, with the objective of obtaining empirically quantifiable hypotheses. An empirical study based on the present formulation has been prepared by the authors (see Bruno and Sachs (1979) ) .

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0340.

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    Date of creation: Apr 1979
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    Handle: RePEc:nbr:nberwo:0340

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    1. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
    2. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
    3. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    4. Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
    5. Stephen J. Turnovsky & Andre Kaspura, 1974. "An Analysis of Imported Inflation in a Short-Run Macroeconomic Model," Canadian Journal of Economics, Canadian Economics Association, vol. 7(3), pages 355-80, August.
    6. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
    7. Fischer, Stanley, 1977. "Wage indexation and macroeconomics stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 107-147, January.
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    Cited by:
    1. Jeffrey D. Sachs, 1980. "Energy and Growth under Flexible Exchange Rates: A Simulation Study," NBER Working Papers 0582, National Bureau of Economic Research, Inc.
    2. Uz, Idil & Ketenci, Natalya, 2010. "Current account and relative prices: cointegration in the presence of structural breaks in emerging economies," MPRA Paper 27467, University Library of Munich, Germany.
    3. Karen H. Johnson, 1981. "The impact of an oil price increase on aggregate supply," International Finance Discussion Papers 182, Board of Governors of the Federal Reserve System (U.S.).
    4. Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc.
    5. Matthew B. Canzoneri & Jo Anna Gray, 1983. "Two essays on monetary policy in an interdependent world," International Finance Discussion Papers 219, Board of Governors of the Federal Reserve System (U.S.).
    6. Buiter, William H & Purvis, Douglas D, 1980. "Oil, Disinflation, and Export Competitiveness : A Model of the "Dutch Disease"," The Warwick Economics Research Paper Series (TWERPS) 185, University of Warwick, Department of Economics.
    7. Grant Kirkpatrick, 1982. "Real factor prices and German manufacturing employment: A time series analysis, 1960I–1979IV," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 118(1), pages 79-103, March.

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