Premium
Price mechanism and endogenous productivity in an open economy stock‐flow consistent model
Author(s) -
Carnevali Emilio
Publication year - 2021
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12309
Subject(s) - economics , open economy , endogenous growth theory , productivity , exchange rate , austerity , shock (circulatory) , macroeconomics , stock (firearms) , fixed exchange rates , monetary economics , context (archaeology) , small open economy , market economy , medicine , mechanical engineering , paleontology , politics , political science , law , engineering , human capital , biology
This paper combines a Stock‐Flow Consistent open economy two‐country model with the Verdoorn‐Kaldor law, which posits a positive relationship between the rate of growth of output and productivity growth. The model shows the role of endogenous productivity as a shock magnifier and underlines the limits of the mechanisms of adjustment that rely exclusively on the “buffer” provided by flexible exchange rates. It also provides arguments in support of fiscal policy both in the context of flexible exchange rates and fixed exchange rates. Finally, it challenges the sustainability of austerity measures aimed to achieve external balance.