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Monetary and Exchange Rate Policy in Multisectorial Economies

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Author Info

  • Habib Ahmed

    (National University of Singapore)

  • Stephen M. Miller

    (University of Connecticut)

Abstract

We develop a two-sector economy where each sector is classified as classical/Keynesian (contract/noncontract) in the labor market and traded/nontraded in the product market. We consider the effects of changes in monetary and exchange rate policy on sectoral and aggregate prices and outputs for different sectoral characterizations. Duca (1987) shows that nominal wage rigidity facilitates the effectiveness of monetary policy even in the classical sector. We demonstrate that trade price rigidity provides a similar path for the effectiveness of monetary policy, in this case, even when both sectors are classical.

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File URL: http://www.econ.uconn.edu/working/1996-11.pdf
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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 1996-11.

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Length: 21 pages
Date of creation: Aug 1996
Date of revision:
Publication status: Published in Journal of Economics and Business, July/August 1997.
Handle: RePEc:uct:uconnp:1996-11

Contact details of provider:
Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
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Related research

Keywords: multisectoral economies; monetary policy; exchange rate policy;

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References

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  1. Duca, John V. & VanHoose, David D., 1990. "Optimal monetary policy in a multisector economy with an economywide money market," Journal of Economics and Business, Elsevier, vol. 42(4), pages 253-263, November.
  2. Calvo, Guillermo A, 1978. "Urban Employment and Wage Determination in LDC's: Trade Unions in the Harris-Todaro Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(1), pages 65-81, February.
  3. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
  4. Dimitri G. Demekas, 1990. "Labor Market Segmentation in a Two-Sector Model of an Open Economy," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 849-864, December.
  5. Waller, Christopher J, 1992. "The Choice of a Conservative Central Banker in a Multisector Economy," American Economic Review, American Economic Association, vol. 82(4), pages 1006-12, September.
  6. Blinder, Alan S. & Mankiw, N. Gregory, 1984. "Aggregation and stabilization policy in a multi-contract economy," Journal of Monetary Economics, Elsevier, vol. 13(1), pages 67-86, January.
  7. Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-77, September.
  8. Paul Hallwood & Ronald MacDonald, 2008. "International Money and Finance," Working papers 2008-02, University of Connecticut, Department of Economics.
  9. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  10. Craig, Gary A, 1981. "A Monetary Approach to the Balance of Trade," American Economic Review, American Economic Association, vol. 71(3), pages 460-66, June.
  11. Schultze, Charles L, 1984. "Cross-Country and Cross-Temporal Differences in Inflation Responsiveness," American Economic Review, American Economic Association, vol. 74(2), pages 160-65, May.
  12. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July.
  13. Duca, John V, 1987. "The Spillover Effects of Nominal Wage Rigidity in a Multisector Economy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 117-21, February.
  14. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
  15. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
  16. R'dseth, Asbj'rn, 1979. " Macroeconomic Policy in a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(1), pages 48-59.
  17. T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
  18. Blomqvist, A. G., 1978. "Urban job creation and unemployment in LDCs : Todaro vs. Harris and Todaro," Journal of Development Economics, Elsevier, vol. 5(1), pages 3-18, March.
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Citations

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Cited by:
  1. Georgios Chortareas & Stephen Miller, 2004. "Optimal Central Banker Contracts and Common Agency," Public Choice, Springer, vol. 121(1), pages 131-155, October.

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