Monetary and Exchange Rate Policy in Multisectorial Economies
We develop a two-sector economy where each sector is classified as classical/Keynesian (contract/noncontract) in the labor market and traded/nontraded in the product market. We consider the effects of changes in monetary and exchange rate policy on sectoral and aggregate prices and outputs for different sectoral characterizations. Duca (1987) shows that nominal wage rigidity facilitates the effectiveness of monetary policy even in the classical sector. We demonstrate that trade price rigidity provides a similar path for the effectiveness of monetary policy, in this case, even when both sectors are classical.
|Date of creation:||Aug 1996|
|Date of revision:|
|Publication status:||Published in Journal of Economics and Business, July/August 1997.|
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