Exchange-rate adjustment and macroeconomic interdependence between stagnant and fully employed countries
This paper presents a two-country two-commodity dynamic model with free international asset trade in which one country achieves full employment and the other suffers long-run unemployment. Own and spill-over effects of changes in policy, technological and preference parameters that emerge through exchange-rate adjustment are examined. Parameter changes that worsen the stagnant countryfs current account depreciate the home currency, expand home employment and improve the foreign terms of trade, making both countries better off. The stagnant countryfs foreign aid to the fully employed country also yields the same beneficial effects.
Year of publication: |
2014-01
|
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Authors: | Ono, Yoshiyasu |
Institutions: | Institute of Social and Economic Research (ISER), Osaka University |
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