Wages, Flexible Exchange Rates, and Macroeconomic Policy

Jeffrey Sachs

The Quarterly Journal of Economics, 1980, vol. 94, issue 4, 731-747

Abstract: In an open economy with a floating exchange rate, the efficacy of fiscal and monetary policy depends fundamentally on the wage-setting process. In the canonical models of Mundell and Fleming, monetary expansion raises output via an exchange rate depreciation, while fiscal expansion has no output effect. These results hold only when real wages can be altered by exchange rate movements; if the real wage is fixed, the Mundell-Fleming ranking of policy is reversed. This paper explores the interaction of wages and policy in short- and long-run models, under the assumptions of perfect foresight and world capital mobility.

Date: 1980
References: Add references at CitEc
Citations: View citations in EconPapers (55)

Downloads: (external link)
http://hdl.handle.net/10.2307/1885666 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:94:y:1980:i:4:p:731-747.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().