The production structure, exchange rate preferences and the short-run—Medium-run macrodynamics

Mario Cimoli, Gilberto Lima and Gabriel Porcile ()

Structural Change and Economic Dynamics, 2016, vol. 37, issue C, 13-26

Abstract: This paper focuses on the role of the production structure in shaping output shares, wage bargaining and the dynamics of the real exchange rate in a Neo-Kaleckian macroeconomic model. While changes in the rate of capital utilization ensure the short-run equilibrium, in the medium run the real exchange rate must adjust to stabilize the labor market and the external sector. Interestingly, these variables define a trilemma in which it is not possible for workers to have their desired wage share, for firms to have their desired profit share in output and for the economy to have a stable deficit in current account to GDP ratio at the same time. Structural change allows for a way out of the trilemma as it makes possible a higher wage share for a given profit share with external equilibrium. The corollary is that distribution and high employment cannot be sustained solely by conventional fiscal and monetary policies: they also require industrial and technological policies that redefine the structural parameters of the system, as a form of reconciling conflicting claims with external equilibrium.

Keywords: Economic growth; Income distribution; Real exchange rate; Structural change; Growth and income distribution; BOP-dominated macrodynamics (search for similar items in EconPapers)
JEL-codes: F31 F43 O11 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The Production Structure, Exchange Rate Preferences and the Short Run – Medium Run Macrodynamics (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:37:y:2016:i:c:p:13-26

DOI: 10.1016/j.strueco.2015.11.006

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