The Production Structure, Exchange Rate Preferences and the Short Run – Medium Run Macrodynamics

Mario Cimoli () and Gabriel Porcile Gilberto Tadeu Lima
Authors registered in the RePEc Author Service: Gabriel Porcile () and Gilberto Tadeu Lima

No 2013_12, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: This paper focuses on the role of the production and trade structures in shaping conflicting claims over income shares and the dynamics of the real exchange rate in a Neo-Kaleckian macroeconomic model of growth and distribution. In the medium run, the economy adjusts to comply with two equilibria, one represented by a solution to conflicting claims on income between workers and firms, and another represented by a stable current account / output ratio. The profit share, wage share and the real exchange rate adjust as the different agents (firms, workers and the government) decide (respectively) on prices, wages and the nominal exchange rate, and the economy moves towards its medium run equilibrium. These variables are thus interconnected and define a trilemma by which it is not possible for workers and firms to attain their desired income shares while at the same time the economy achieves external equilibrium. Structural change allows for a way out of the trilemma as it redefines (to some extent) the value of parameters of the model and makes possible higher rates of growth along with a better income distribution, both in the short run and in the medium run. The corollary is that a better income distribution and high employment cannot be sustained solely by conventional fiscal and monetary policies; they also require structural change – industrial and technological policies that redefine structural parameters of the system as a form of reconciling conflicting claims with higher international competitiveness.

Keywords: Economic growth; income distribution; real exchange rate; strucutural change (search for similar items in EconPapers)
JEL-codes: F31 F43 O11 (search for similar items in EconPapers)
Date: 2013-10-01
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Journal Article: The production structure, exchange rate preferences and the short-run—Medium-run macrodynamics (2016)
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