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Wage Contracts, Capital Mobility, and Macroeconomic Policy
Author:
Pierre-Richard Agénor null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1995: Issue 010
Language:
English
Publication Date:
01 Jan 1995
DOI:
https://doi.org/10.5089/9781451842647.001
ISBN:
9781451842647
ISSN:
1018-5941
Pages:
32
Keywords:
WP; net effect; industrialization policy; home goods sector; home goods market; rate of inflation; opportunity cost; exportable goods; effect of a change; goods price; equilibrium condition of the home goods market; home goods price; firms in the home goods sector; Real exchange rates; Wages; Exports; Consumption; Real wages; Southeast Asia
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines the long-run effects of macroeconomic policy shocks on the behavior of output, inflation, real wages and the real exchange rate in a small open economy. The analysis is based on a two-sector, three-good optimizing model with imperfect capital mobility, nominal wage contracts with backward- or forward-looking price expectations, and endogenous mark-up pricing in the nontraded goods sector. The effects of a cut in government spending on nontraded goods are shown to be independent of the expectational mechanism embedded in wage contracts. A reduction in the nominal devaluation rate lowers steady-state output in the tradable sector under backward-looking contracts, but exerts an expansionary effect under forward-looking contracts.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund