The Distributional Consequences of Real Exchange Rate Adjustment

Author/Editor:

Vladimir Klyuev

Publication Date:

June 1, 2003

Electronic Access:

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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:

The paper focuses on distributional consequences of macroeconomic adjustment. The preferences of economic agents over the level of the real exchange rate derived from standard models are monotonic, with agents favoring either an infinitely appreciated or depreciated rate. To generate less extreme preferences, a model is presented where appreciation would depress economic activity, while a large depreciation would hit the tradable sector by limiting the availability of labor, offsetting the favorable price effect. The model is in the spirit of the dependent economy model, but built on explicit microfoundations. The results can be used to analyze political economy aspects of macroeconomic adjustment.

Series:

Working Paper No. 2003/133

Subject:

Income Labor Political economy Real exchange rates Wages

English

Publication Date:

June 1, 2003

ISBN/ISSN:

9781451855517/1018-5941

Stock No:

WPIEA1332003

Pages:

35

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