Erschienen:
Cambridge, Mass: National Bureau of Economic Research, November 1983
Erschienen in:NBER working paper series ; no. w1233
Umfang:
1 Online-Ressource
Sprache:
Englisch
DOI:
10.3386/w1233
Identifikator:
Reproduktionsnotiz:
Hardcopy version available to institutional subscribers
Entstehung:
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Beschreibung:
This paper analyzes the role of relative prices in the conduct of wage indexation and monetary policy in a small economy producing traded and non-traded goods under a flexible exchange rate regime. It is shown that the beneficial effect of using relative prices in addition to aggregate prices as indicators for the conduct of the above policies increases with openness. The response of policies to relative prices rises with openness,and has dampening effects on the volatility of deviations from purchasing power parity. The analysis demonstrates that the beneficial effect of allowing a"basket" indexation (or a money rule that responds also to relative prices) lies in mitgating the effects of foreign shocks