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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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    2. Ganguly, Arpan & Spinola, Danilo, 2024. "Growth and distribution regimes under global value chains: Diversification, integration, and uneven development," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 634-649.
    3. Dávila-Fernández, Marwil J. & Oreiro, José L. & Dávila Dávila, Mario W., 2018. "Endogenizing non-price competitiveness in a BoPC growth model with capital accumulation," Structural Change and Economic Dynamics, Elsevier, vol. 44(C), pages 77-87.
    4. Luìs, Galindo & Giulio, Guarini & Gabriel, Porcile, 2020. "Environmental innovations, income distribution, international competitiveness and environmental policies: a Kaleckian growth model with a balance of payments constraint," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 16-25.
    5. Oreiro, José L. & da Silva, Kalinka M. & Dávila-Fernández, Marwil J., 2020. "A New Developmentalist model of structural change, economic growth and middle-income traps," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 26-38.
    6. Spinola, Danilo, 2020. "Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 220-232.
    7. Palazzo, Gabriel & Rapetti, Martín, 2023. "From macro to micro and macro back: Macroeconomic trade elasticities in a developing economy," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 223-252.
    8. Olvera, Beatriz Calzada & Spinola, Danilo, 2025. "Determinants of export diversification in resource-dependent economies: The role of product relatedness and macroeconomic conditions," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 578-590.
    9. Sartorello Spinola, Danilo, 2020. "Debating the assumptions of the Thirlwall Model: A VECM analysis of the Balance of Payments for Argentina, Brazil, Colombia, and Mexico," MERIT Working Papers 2020-001, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    Keywords

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    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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