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The Production Structure, Exchange Rate Preferences and the Short Run – Medium Run Macrodynamics

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  • Mario Cimoli

    ()

  • Gilberto Tadeu Lima, Gabriel Porcile

Abstract

This paper focuses on the role of the production and trade structures in shaping conflicting claims over income shares and the dynamics of the real exchange rate in a Neo-Kaleckian macroeconomic model of growth and distribution. In the medium run, the economy adjusts to comply with two equilibria, one represented by a solution to conflicting claims on income between workers and firms, and another represented by a stable current account / output ratio. The profit share, wage share and the real exchange rate adjust as the different agents (firms, workers and the government) decide (respectively) on prices, wages and the nominal exchange rate, and the economy moves towards its medium run equilibrium. These variables are thus interconnected and define a trilemma by which it is not possible for workers and firms to attain their desired income shares while at the same time the economy achieves external equilibrium. Structural change allows for a way out of the trilemma as it redefines (to some extent) the value of parameters of the model and makes possible higher rates of growth along with a better income distribution, both in the short run and in the medium run. The corollary is that a better income distribution and high employment cannot be sustained solely by conventional fiscal and monetary policies; they also require structural change – industrial and technological policies that redefine structural parameters of the system as a form of reconciling conflicting claims with higher international competitiveness.

Suggested Citation

  • Mario Cimoli & Gilberto Tadeu Lima, Gabriel Porcile, 2013. "The Production Structure, Exchange Rate Preferences and the Short Run – Medium Run Macrodynamics," Working Papers, Department of Economics 2013_12, University of São Paulo (FEA-USP).
  • Handle: RePEc:spa:wpaper:2013wpecon12
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    References listed on IDEAS

    as
    1. Razmi, Arslan & Rapetti, Martin & Skott, Peter, 2012. "The real exchange rate and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(2), pages 151-169.
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    4. Gilberto Lima & Gabriel Porcile, 2013. "Economic growth and income distribution with heterogeneous preferences on the real exchange rate," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(4), pages 651-674.
    5. Jose Antonio Cordero, 2004. "Devaluation, Conflict Inflation and Endogenous Growth in a Small Open Economy," EconoQuantum, Revista de Economia y Negocios, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 1(1), pages 3-15, Julio-Dic.
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    More about this item

    Keywords

    Economic growth; income distribution; real exchange rate; strucutural change;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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