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Efficiency Wages and Nominal Income Targeting in an Open Economy
Author(s) -
Wang ChihHsu,
Lai ChingChong
Publication year - 2002
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.00178
Subject(s) - economics , unemployment , aggregate demand , aggregate supply , income elasticity of demand , open economy , monetary economics , aggregate income , labour economics , macroeconomics , monetary policy , income distribution , mathematical analysis , mathematics , inequality , exchange rate
. This paper considers the choice between nominal income and money supply targeting in an open economy with efficiency wages. The results show that, when real unemployment benefits are rigid, both nominal income and money supply targeting have the same stabilizing performance. On the contrary, if nominal unemployment benefits are rigid, then we come to a conclusion that either in the face of goods demand shocks or aggregate supply shocks, a sufficient condition for nominal income targeting to be preferable is that the income elasticity of money demand be less than unity.