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Exchange rate policy and income distribution in an open developing economy

  • Tropeano, Domenica
  • Michetti, Elisabetta

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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  1. 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.
  2. 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.
  3. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
  4. Jere R. Behrman & Nancy Birdsall & Miguel Székely, 2003. "Economic Policy and Wage Differentials in Latin America," Working Papers 29, Center for Global Development.
  5. Joze Mencinger, 2003. "Does Foreign Direct Investment Always Enhance Economic Growth?," Kyklos, Wiley Blackwell, vol. 56(4), pages 491-508, November.
  6. 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.
  7. repec:cup:cbooks:9780521030991 is not listed on IDEAS
  8. Stephen Nickell & Glenda Quintini, 2001. "Nominal wage rigidity and the rate of inflation," LSE Research Online Documents on Economics 20131, London School of Economics and Political Science, LSE Library.
  9. Domenica Tropeano, 2004. "Does financial liberalization affect the distribution of income between wages and profit ?," Working Papers 24-2004, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
  10. Erinc Yeldan, 2007. "Patterns of Adjustment under the Age of Finance: The Case of Turkey as a Peripheral Agent of Neoliberal Globalization," Working Papers wp126, Political Economy Research Institute, University of Massachusetts at Amherst.
  11. Eric Kam & John Smithin, 2004. "Monetary policy and demand management for the small open economy in contemporary conditions with (perfectly) mobile capital," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(4), pages 679-694, October.
  12. Smith, Jennifer C, 2000. "Nominal Wage Rigidity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 110(462), pages C176-95, March.
  13. Tropeano Domenica, 2005. "Financial Liberalization, Growth and Distribution in Developing Countries: Seme Notes on a Different Approach," Economia politica, Società editrice il Mulino, issue 3, pages 439-456.
  14. Ozlem Onaran, 2002. "Measuring wage flexibility: the case of Turkey before and after structural adjustment," Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 767-781.
  15. 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.
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