Two countries
Subtitle: international underemployment inflationary steady-state unbalance growth
By: Hans Brems
Contributors: University of Illinois at Urbana-Champaign. College of Commerce and Business Administration
Series: Faculty working papers -- no. 523; Faculty working papers -- no. 523.
Publisher: College of Commerce and Business Administration, University of Illinois at Urbana-Champaign
Published: 1978
Place of publication: [Urbana, Ill.]
Language: eng
Number of pages: 30
Subjects: Effect of inflation on; International economic relations; Unemployment
Description: "In a two-country neoclassical growth model with a flexible exchange rate, simple solutions are found for underemployment inflationary steady-state equilibrium growth. Each rate of growth of the four real wage rates will be the same for any value of the employment fraction and for any value of the inflationary potential. As a result, Friedman's 'natural' rate of unemployment is not unique. Employment and inflation cannot both be controlled by monetary policy. International growth will be balanced only as an odd piece of luck. The purchasing power parity theory of the exchange rate is not the whole story : the rate of growth of the exchange rate depends upon the rates of growth of physical outputs no less than upon the rates of growth of prices. Ultimately it is found to depend upon the employment fractions and the inflationary potentials of both countries."
Notes: Includes bibliographical references (p. 30).