EXCHANGE RATE-BASED DISINFLATION, WAGE RIGIDITY, AND CAPITAL INFLOWS

Timothy Condon, Vittorio Corbo and Jaime de Melo

Chapter 6 in Modeling Developing Countries' Policies in General Equilibrium, 2015, pp 97-115 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This paper studies two effects that accompanied the real exchange rate appreciation in Chile during 1979–81. First, econometric and simulation evidence is given that an alternative policy restricting capital inflows to a lower level would have led to a disproportionately larger fall in absorption than in income, and the decline in absorption would have fallen disproportionately more on consumption than on investment. Second, econometric and simulation evidence is given of the extent to which a more flexible wage indexation rule would have offset the adverse impact on the protected sector employment of lower capital inflows.

Keywords: Applied General Equilibrium Models; Trade Policy; Computable General Equilibrium; Archetypes (search for similar items in EconPapers)
Date: 2015
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