Some Skepticism Concerning the Price Level Insulation Properties of a Flexible Exchange Rate

Douglas Purvis

Working Paper from Economics Department, Queen's University

Abstract: The present paper develops a model of exchange rate and price level determination as the simultaneous solution to goods and asset market equilibrium in conjunction with purchasing power parity. Exchange rate changes operate through income, wealth and substitution effects to have real consequences even in the short run. The responsiveness of domestic wages plays a crucial role in determining the relative effectiveness of flexible rates in providing price insulation; further, the real costs in terms of output and consumption, of such insulation as does arise are discussed.

Pages: 23
Date: 1977
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:263

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