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

  • Mario Cimoli

    ()

  • Gilberto Tadeu Lima, Gabriel Porcile

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.

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File URL: http://www.fea.usp.br/feaecon/RePEc/documentos/Cimoli_Lima_Porcile12WP.pdf
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Paper provided by University of São Paulo (FEA-USP) in its series Working Papers, Department of Economics with number 2013_12.

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Date of creation: 01 Oct 2013
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Handle: RePEc:spa:wpaper:2013wpecon12
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  1. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
  2. Roberto Frenkel & Martin Rapetti, 2010. "A Concise History of Exchange Rate Regimes in Latin America," UMASS Amherst Economics Working Papers 2010-01, University of Massachusetts Amherst, Department of Economics.
  3. 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.
  4. Anthony P. Thirlwall, 2011. "Balance of payments constrained growth models: history and overview," PSL Quarterly Review, Economia civile, vol. 64(259), pages 307-351.
  5. Philip Arestis & Malcolm Sawyer, 2011. "A new paradigm for macroeconomic policy," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(1/2/3), pages 22-39.
  6. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2013. "The output effect of fiscal consolidations," Working Papers 478, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Gilberto Tadeu Lima & Gabriel Porcile, 2013. "Economic growth and income distribution with heterogeneous preferences on the real exchange rate," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 35(4), pages 651-674, July.
  8. 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.
  9. Leonardo Vera, 2010. "Conflict inflation: an open economy approach," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 597-615, September.
  10. Robert A. Blecker, 2010. "Open economy models of distribution and growth," Working Papers 2010-03, American University, Department of Economics.
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