Title: Fiscal and exchange rate policies in a fix-price trade model with export rationing
Abstract: Recent writings in macroeconomics [e.g. Barro-Grossman (1976) and Malinvaud (1977)] have presented models where short-run price and wage rigidities prevent instantaneous attainment of a Walrasian equilibrium. The effects of macroeconomics policies in such models where prices and wages are exogenously fixed for one reason or another, depend critically on the nature of the implied rationing of labor and output among potential demanders and suppliers in various nonmarket-clearing situations. The present paper develops a simple two-sector model of an open economy in which rationing occurs when the exportable good is in short supply. The short-run effects of fiscal and exchange rate policies on output and the trade balance are shown to vary depending on the nature of labor and output markets ‘disequilibria’. Policy-makers must, therefore, be able to assess the nature of nonmarket-clearing situations to prescribe appropriate policy measures. Naive assumptions that standard Keynesian models are appropriate may lead to policy errors.
Publication Year: 1980
Publication Date: 1980-08-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 14
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