Macrodynamics of Stabilization under Dual Exchange Rate: an Effective Demand Model

Ranjanendra Narayan Nag ()
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Ranjanendra Narayan Nag: St. Xavier’s College, Postal: P-36, CIT Scheme 6 M (S), Kolkata - 700054, West, Bengal, INDIA, St. Xavier’s College, 30, Park Street, Kolkata - 700 016, West Bengal, India

Journal of Economic Integration, 2008, vol. 23, 390-410

Abstract:

The paper examines effects of selected measures of stabilization in a financially repressed economy under two-tier exchange rate. Since financial repression is a generic category, it requires context-specific (model-specific) representation. In this paper financial repression is represented in terms of a very rudimentary asset structure. The models of the dual exchange rate in the existing literature are by and large full-employment models. Consequently the targets of stabilization are inflation and current account balance. This paper attempts to make an intervention in the literature by introducing the problem of effective demand and unemployment. Hence, we get wider range of targets of stabilization namely unemployment, current account balance and inflation. We will utilize the asset approach of the Calvo-Rodriguez model in an otherwise aggregative Dornbusch type model under the assumption that commodity price is sticky and output is demand determined.

Keywords: Dual exchange rate; Stabilization; Effective demand (search for similar items in EconPapers)
JEL-codes: E19 F41 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0439

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