Economic growth and income distribution with heterogeneous preferences on the real exchange rate
AbstractWe present a dynamic model of capacity utilization and growth which takes into due account the joint determination of the international competitiveness (measured by the real exchange rate) and functional income distribution. It follows that how distribution, capacity utilization and growth vary with the real exchange rate depends on the cause of change in the latter (nominal exchange rate or markup). Over the medium run, the nominal exchange rate (markup) changes when the actual real exchange rate differs from the level preferred by the government (capitalists). While there is a medium-run equilibrium in which capitalists and the government come to share a preferred real exchange rate, the economy may not converge to it. In fact, when the government is primarily concerned with preserving workers’ share in income when manipulating the nominal exchange rate, a limit cycle obtains: the economy experiences endogenous cyclical fluctuations in the real exchange rate, distribution, capacity utilization and growth that resemble the experience of several developing countries. Thus, growth regressions featuring the real exchange rate should include distribution in the vector of control variables, which has not been the case.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32356.
Date of creation: Jul 2011
Date of revision:
growth; distribution; capacity utilization; real exchange rate;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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