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exchange rate policy and income distribution in an open developing economy

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tropeano, d
michetti, e

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Abstract

In this work we are going to deal with the issue of distribution of income in an open economy within a simplified macroeconomic model with constant prices.this type of model could apply to middle-income developing countries, which have succeeded in fighting inflation through a policy of high interest rates.It will be assumed that the implicit target of monetary policy now becomes the exchange rate and interest rates are set to a high level to lower the exchange rate. Even if this strategy may work it may produce negative effects on output growth and the distribution of income.The lowering of the exchange rate target would have the following effects on distribution.It would cause a reduction in the growth of output,it would lower the wage rate.Domestically-produced income distributed abroad should increase instead.The domestic interst rate would rise only for suitable small values of the parameter which links imports to income.The effect on the profit share is indeed uncertain.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6642.

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Date of creation: Jan 2008
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Handle: RePEc:pra:mprapa:6642

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Related research
Keywords: exchange rate policy balance of payments income distribution developing countries

Find related papers by JEL classification:
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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References listed on IDEAS
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    Other versions:
  2. Jan Kregel, 2004. "Can we create a stable international financial environment that ensures net resource transfers to developing countries?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(4), pages 573-590, October. [Downloadable!] (restricted)
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  5. Castellanos, Sara G. & Garcia-Verdu, Rodrigo & Kaplan, David S., 2004. "Nominal wage rigidities in Mexico: evidence from social security records," Journal of Development Economics, Elsevier, vol. 75(2), pages 507-533, December. [Downloadable!] (restricted)
    Other versions:
  6. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How wages change: micro evidence from the international wage flexibility project," Staff Reports 275, Federal Reserve Bank of New York. [Downloadable!]
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  7. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March. [Downloadable!] (restricted)
  8. Joze Mencinger, 2003. "Does Foreign Direct Investment Always Enhance Economic Growth?," Kyklos, Blackwell Publishing, vol. 56(4), pages 491-508, November. [Downloadable!] (restricted)
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  10. H. Sonmez Atesoglu & John Smithin, 2006. "Inflation targeting in a simple macroeconomic model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(4), pages 673-688, July. [Downloadable!] (restricted)
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