Inflationary effects of monetary policies in newly industrialized economies with cross-sectoral labor and capital immobility

Anindya S. Chakrabarti

Journal of Macroeconomics, 2016, vol. 50, issue C, 151-167

Abstract: This paper studies the effects of monetary policies in newly industrialized economies characterized by extremely low level of labor and capital mobility between urban and rural sectors. Policies are executed in the urban sector which sends waves of adjustments in the rest of the economy. I show that with liquidity constraints and immobility in labor and capital, the sector-specific effects are markedly different from those in a one-sector economy. In particular, they are asymmetric and the rural sector lags behind the urban sector during adjustment process. This explains temporary phases of significantly high inflation with uneven sectoral effects which often accompany major reforms in the banking and monetary institutions of such economies, e.g. in case of India. Finally, as consumption patterns alter in such an economy undergoing structural changes, the sectoral distribution of liquidity is affected inducing dissimilar responses to shocks, both within and between sectors.

Keywords: Newly industrialized economy; Market rigidity; Frictions; Sticky price; Liquidity shocks (search for similar items in EconPapers)
JEL-codes: E24 E31 E51 E58 E61 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:50:y:2016:i:c:p:151-167

DOI: 10.1016/j.jmacro.2016.09.006

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