Openness, Relative Prices and Macro Policies / Joshua Aizenman.

Format:

Book

Author/Creator:

Aizenman, Joshua.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1233.

NBER working paper series no. w1233

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1983.

Summary:

This paper analyzes the role of relative prices in the conduct of wage indexation and monetary policy in a small economy producing traded and non-traded goods under a flexible exchange rate regime. It is shown that the beneficial effect of using relative prices in addition to aggregate prices as indicators for the conduct of the above policies increases with openness. The response of policies to relative prices rises with openness,and has dampening effects on the volatility of deviations from purchasing power parity. The analysis demonstrates that the beneficial effect of allowing a"basket" indexation (or a money rule that responds also to relative prices) lies in mitgating the effects of foreign shocks.

Notes:

Print version record

November 1983.