Demand Management Towards Internal and External Balance in an Open Economy with Centralized Wage Setting

Torben M. Andersen
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Torben M. Andersen: University of Aarhus

No 1991043, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The efficiency of demand management policies is considered in a two- sector model of a small and open economy with centralized wage bargaining. Differences in labour demand between sectors are shown to have qualitative implications for the responsiveness of wages to changes in out- put prices. Wage increases induced by increased demand in one sector may, thus, crowd out activity in other sectors, and this has important con- sequences for the effects of demand management policies on internal and external goals. An often proposed and practised policy of switching demand from tradeables to non-tradeables to ensure internal and external balance is extensively discussed.

Pages: 18
Date: 1991-12-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:1991043

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