Home

Wages, Flexible Exchange Rates, and Macroeconomic Policy

Jeffrey D. Sachs

Title:
Wages, Flexible Exchange Rates, and Macroeconomic Policy
Author(s):
Sachs, Jeffrey D.
Date:
Type:
Articles
Department:
Earth Institute
Volume:
94
Permanent URL:
Book/Journal Title:
Quarterly Journal of Economics
Abstract:
In an open economy with a floating exchange rate, the efficacy of fiscal and monetary policy depends fundamentally on the wage-setting process. In the canonical models of Mundell and Fleming, monetary expansion raises output via an exchange rate depreciation, while fiscal expansion has no output effect. These results hold only when real wages can be altered by exchange rate movements; if the real wage is fixed, the Mundell-Fleming ranking of policy is reversed. This paper explores the interaction of wages and policy in short- and long-run models, under the assumptions of perfect foresight and world capital mobility.
Subject(s):
Economic theory
Item views:
201
Metadata:
text | xml

In Partnership with the Center for Digital Research and Scholarship at Columbia University Libraries/Information Services | Terms of Use