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Effects of Productive Heterogeneity and Different Exchange Rate Schemes on the Employment Cycle in Argentina

  • Demian Panigo

    ()

    (CEIL-PIETTE, UBA, UNLP)

  • Pablo Chena

    ()

    (CEIL-PIETTE, UNLP)

  • Ana Gárriz

    ()

    (UNLP)

The aim of this paper is to examine the effect of different exchange rate schemes, alternative demand regimes and variable degrees of productive heterogeneity on employment volatility in Argentina over the last two decades. The main contribution lies in the theoretical development of a series of dynamic simultaneous equation models owing to different heterodox schools of thought (following the definition given by Foley and Taylor, 2004), to show the cyclical characteristics of employment that result from combining an unbalanced economic structure with the investment accelerator, the Keynesian multiplier, the class struggle and the open economy adjustment channels (financial and commercial). Our key research results emphasize that: 1) Convertibility plan increased employment volatility because of destabilizing financial channel effects overreacting the stabilizing commercial channel impact, and; 2) Post-Convertibility decreasing employment volatility could be explained by two alternative hypothesis: a.- the combination of a manage float exchange rate scheme (in parallel with capital flow controls) with a wage led demand regime (where both commercial and financial channels stabilize cyclical fluctuations), or; b.- the same monetary/exchange rate scheme in conjunction with a profit led demand regime, but only when financial channel stabilizing forces overweight the commercial channel destabilizing impact. Formal results suggest that the higher the productive heterogeneity, the lower the probability of the latter hypothesis to be theoretically sound.

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Article provided by Central Bank of Argentina, Economic Research Department in its journal Ensayos Económicos.

Volume (Year): 1 (2010)
Issue (Month): 59 (July - September)
Pages: 81-130

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Handle: RePEc:bcr:ensayo:v:1:y:2010:i:59:p:81-130
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  1. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Skott, Peter, 1989. "Effective Demand, Class Struggle and Cyclical Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 231-47, February.
  3. Sidney S. Alexander, 1952. "Effects of a Devaluation on a Trade Balance," IMF Staff Papers, Palgrave Macmillan, vol. 2(2), pages 263-278, April.
  4. Skott,Peter, 2008. "Conflict and Effective Demand in Economic Growth," Cambridge Books, Cambridge University Press, number 9780521066310.
  5. Amit Bhaduri, 2008. "On the dynamics of profit-led and wage-led growth," Cambridge Journal of Economics, Oxford University Press, vol. 32(1), pages 147-160, January.
  6. Rudiger Dornbusch, 1980. "Exchange Rate Rules and Macroeconomic Stability," NBER Working Papers 0473, National Bureau of Economic Research, Inc.
  7. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  8. Maurizio Pugno, 1998. "The Stability of Thirlwall's Model of Economic Growth and the Balance-of-Payments Constraint," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 20(4), pages 559-581, July.
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