IMF Working Papers

Wage Contracts, Capital Mobility, and Macroeconomic Policy

By Pierre-Richard Agénor

January 1, 1995

Preview Citation

Format: Chicago

Pierre-Richard Agénor. Wage Contracts, Capital Mobility, and Macroeconomic Policy, (USA: International Monetary Fund, 1995) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Consumption, Exports, Foreign exchange, International trade, Labor, National accounts, Real exchange rates, Real wages, Wages

Keywords: Consumption, Effect of a change, Equilibrium condition of the home goods market, Exportable goods, Exports, Firms in the home goods sector, Goods price, Home goods market, Home goods price, Home goods sector, Industrialization policy, Net effect, Opportunity cost, Rate of inflation, Real exchange rates, Real wages, Southeast Asia, Wages, WP

Publication Details

  • Pages:

    32

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1995/010

  • Stock No:

    WPIEA0101995

  • ISBN:

    9781451842647

  • ISSN:

    1018-5941

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