Unemployment, Slowly Declining Wages, and Depressed Investments: Does it Help to Devalue?
1989 (English)Report (Other academic)
We consider an intertemporal small open economy with unemployment and depressed investments due to a high real wage. As the required wage adjustment takes time, we investigate whether a devaluation easens the adjustment process. Concerning employment, we find that it is possible to achieve a high level in the entire adjustment process, assuming that the adjustment is non-cyclical. In the cyclical case, the cumulative employment effect per unit of capital is positive. In any case, the employment gain is achieved at the cost of lower productivity. Finally, a cycle in the current account seems likely.
Place, publisher, year, edition, pages
Stockholm: IIES , 1989. , 41 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 454
IdentifiersURN: urn:nbn:se:su:diva-41756OAI: oai:DiVA.org:su-41756DiVA: diva2:337665
Published in connection with a visit at the IIES.2010-08-092010-08-092010-08-09