Exchange-Rate Adjustment and Macroeconomic Interdependence between Stagnant and Fully Employed Countries

24 Pages Posted: 13 Mar 2014

See all articles by Yoshiyasu Ono

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

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Date Written: February 21, 2014

Abstract

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 country’s current account depreciate the home currency, expand home employment and improve the foreign terms of trade, making both countries better off. The stagnant country’s foreign aid to the fully employed country also yields the same beneficial effects.

Keywords: long-run unemployment, fiscal expansion, current account, liquidity trap, exchange rate

JEL Classification: F320, F410, F350

Suggested Citation

Ono, Yoshiyasu, Exchange-Rate Adjustment and Macroeconomic Interdependence between Stagnant and Fully Employed Countries (February 21, 2014). CESifo Working Paper Series No. 4659. Available at SSRN: https://ssrn.com/abstract=2407881

Yoshiyasu Ono (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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