NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Relative Prices, Employment, and the Exchange Rate in an Economy with Foresight

Maurice Obstfeld

NBER Working Paper No. 685 (Also Reprint No. r0329)
Issued in June 1981
NBER Program(s):   ITI   IFM

This paper studies the effects of monetary policy in a small, open economy with a floating exchange rate, sticky wages, and rational expectations in both the asset and labor markets. The model developed emphasizes the link between exchange-rate depreciation and nominal wage inflation, embodying it in an expectations-augmented Phillips curve. The economy studied produces both traded and non-traded goods, and thus provides a framework in which to explore the connection between the dynamic behavior of the exchange rate and the supply structure and degree of openness of the economy. In addition, the paper examines the "vicious circle" hypothesis, showing how an explosive cycle of exchange-rate depreciation and wage-price inflation may arise in response to an expected monetary expansion.

download in pdf format
   (395 K)

download in djvu format
   (315 K)

email paper

This paper is available as PDF (395 K) or DjVu (315 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0685

Published: Obstfeld, Maurice. "Relative Prices, Employment, and the Exchange Rate in an Economy with Foresight." Econometrica, Vol. 50, No. 5, September 1982, pp . 1219-1242.

Users who downloaded this paper also downloaded these:
Branson and Love w2435 The Real Exchange Rate and Employment in U.S. Manufacturing: State and Regional Results
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us