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Macrodynamics of Stabilization under Dual Exchange Rate: an Effective Demand Model

Author

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  • Narayan Nag, Ranjanendra

    () (St. Xavier’s College)

Abstract

The paper examines effects of selected measures of stabilization in a financially repressed economy under two-tier exchange rate. Since financial repression is a generic category, it requires context-specific (model-specific) representation. In this paper financial repression is represented in terms of a very rudimentary asset structure. The models of the dual exchange rate in the existing literature are by and large full-employment models. Consequently the targets of stabilization are inflation and current account balance. This paper attempts to make an intervention in the literature by introducing the problem of effective demand and unemployment. Hence, we get wider range of targets of stabilization namely unemployment, current account balance and inflation. We will utilize the asset approach of the Calvo-Rodriguez model in an otherwise aggregative Dornbusch type model under the assumption that commodity price is sticky and output is demand determined.

Suggested Citation

  • Narayan Nag, Ranjanendra, 2008. "Macrodynamics of Stabilization under Dual Exchange Rate: an Effective Demand Model," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 390-410.
  • Handle: RePEc:ris:integr:0439
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    References listed on IDEAS

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    More about this item

    Keywords

    Dual exchange rate; Stabilization; Effective demand;

    JEL classification:

    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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