The fallacy of composition and contractionary devaluations: output effects of real exchange rate shocks in semi-industrialised countries

Blecker, Robert A.; Razmi, Arslan

doi:10.1093/cje/bem021

Cited by 56 publications

(37 citation statements)

References 34 publications

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“…Blecker and Razmi, 2008). It also helps to highlight the limits of those attempts to solve complex problems of open macroeconomic policy simply through extreme solutions on exchange rates (Palley, 2003).…”

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‘Solvency rule’ and capital centralisation in a monetary union

Brancaccio¹,

Fontana

2015

CAMECO

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Brancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries. The rule highlights the existence of a relationship between the interest rate set by the central monetary authority, and the allocation of ownership of physical capital among the member countries of the monetary union, i.e. the "rates of capital centralization". The paper also shows the conditions under which the existence and stability of policy mechanisms, including deflationary, currency devaluation and government intervention policies, are able to guarantee the achievement and maintenance of the solvency condition in a stylised monetary union. (0)113 343 4465). We are grateful to the two anonymous referees of this Journal for very helpful comments and suggestions, which have helped to improve the paper considerably. All errors are our responsibility. VECCHIO Brancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries. KeywordsThe rule highlights the existence of a relationship between the interest rate set by the central monetary authority, and the allocation of ownership of physical capital among the member countries of the monetary union, i.e. the "rates of capital centralization".The paper also shows the conditions under which the existence and stability of policy mechanisms, including deflationary, currency devaluation and government intervention policies, are able to guarantee the achievement and maintenance of the solvency condition in a stylised monetary union. NUOVOBrancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This "solvency rule" is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries.The rule highlights the existence of a relationship between the interest rate set by the central monetary authority and the "rates of capital centralization", which describe the changes in the allocation of ownership of physical capital among the member countries of the monetary union.The paper also shows the nexus between solvency and government debt sustainability and examines the implications of deflationary or currency devaluation policies for the solvency condition and the speed of capital centralization. Commented [GF1]:I am not sure I follow this suggestion. As far as I remember, the "rates of centralization" of physical capital refer to the net sales or acquisitions of existing capital that are necessary to guarante...

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‘Solvency rule’ and capital centralisation in a monetary union

Brancaccio¹,

Fontana

2015

CAMECO

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“…Empirical support for a ‘fallacy of composition’ argument in semi‐industrialized countries can be found in Blecker and Razmi (). Evidence discussed in Stockhammer and Onaran () suggests European Union countries might be wage‐led, but nevertheless engage in labor suppression.…”

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Redistribution in a Neo‐Kaleckian Two‐country Model

2014

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We investigate the interaction between demand-driven growth and income distribution in open economies, by combining expenditure-switching and demand spillover effects in a neo-Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass-through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution towards labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage-led, but can lead to lower growth at Home relative to Foreign; and (ii) will always imply lower growth at Home relative to Foreign if Home is profit-led, but can still be growth-enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of composition can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, 'returns to coordination' over international labor policies might be substantial.

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“…However, while the emphasis was on protective responses, it did not account for the possible changes in the terms of trade and changes in the variety and quality of products exported as the developing countries sought to export their way to growth. Faini et al (1992) and Blecker and Razmi (2008) showed that for developing countries, competition with other developing country exporters was a more important consideration than that with industrial country exporters. Their simulations revealed that the benefits of currency devaluation to a country largely vanished when competing developing country exporters followed a similar policy.…”

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confidence: 99%

Trade Variety and Export Performance of ASEAN-5

Ghani¹,

Sofyan²

2014

JEM

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(Indonesia, Malaysia, Philippines, Singapore, and Thailand) (Indonesia, Malaysia, Filipina, Singapura, dan Thailand) adalah kebergantungan pada pengimportan komponen pengantara; dengan itu kepelbagaian import juga merupakan faktor penting yang dapat memberi kesan kepada pertumbuhan eksport Kajian ini mengukur dinamik untuk kepelbagaian eksport dan import bagi negara-negara ASEAN-5 bagi tempoh 1991ASEAN-5 bagi tempoh -2008 menggunakan indek-indek kepelbagaian berdasarkan entropi Shannon. Ia kemudian menentukan sama ada perkembangan kepelbagaian dalam jenis produk yang dieksport dan diimport dapat menerangkan pertumbuhan pesat eksport di negara-negara Kata kunci: Kepelbagaian eksport; kepelbagaian import; kepelbagaian tidak berkaitan; kepelbagaian berkaitan; pertumbuhan eksport. telah berkembang dengan amat pesat sejak beberapa dekad yang lalu. Namun pertumbuhan pesat eksport boleh menjejaskan kebajikan rakyat sesebuah negara jika ia diikuti dengan kemerosotan terma perdagangan (terms of trade). Peningkatan jenis-jenis produk yang didagangkan dan teknologi dapat menggerakkan negara ke arah yang lebih tinggi dalam rantaian nilai dan menghentikan kemerosotan terma perdagangan. Satu lagi ciri penting bagi eksport Negara-negara

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The fallacy of composition and contractionary devaluations: output effects of real exchange rate shocks in semi-industrialised countries

Cited by 56 publications

References 34 publications

‘Solvency rule’ and capital centralisation in a monetary union

‘Solvency rule’ and capital centralisation in a monetary union

Redistribution in a Neo‐Kaleckian Two‐country Model

Trade Variety and Export Performance of ASEAN-5

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