The welfare implications of exchange rate choices in developing agricultural economies
| Autor: | Tara Iyer |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
Product market media_common.quotation_subject 05 social sciences Wage Exchange-rate regime Relative price Exchange-rate flexibility ComputingMilieux_GENERAL Exchange rate Economy Currency 0502 economics and business Economics Open economy 050207 economics 050205 econometrics media_common |
| Zdroj: | Journal of Macroeconomics. 66:103233 |
| ISSN: | 0164-0704 |
| Popis: | This paper analyzes the appropriate choice of an exchange rate regime in agricultural commodity-exporting economies. In an estimated open economy model that incorporates key structural characteristics of agricultural commodity exporters including dual labor markets and imperfect asset markets, the benefits of exchange rate flexibility are shown to depend on the extent of labor and product market development. With developed markets, flexible exchange rates are preferred as they allow for greater relative price fluctuations, which amplify the transmission mechanism of labor re-allocation upon commodity price volatility. When labor and product markets are not well-developed, however, international relative price adjustments exacerbate currency and factor misalignments. A nominal exchange rate peg, by mitigating relative wage and price fluctuations, increases welfare relative to a float. Given the current low level of labor and product market development across most agricultural commodity exporters, the study provides a novel rationale as to why exchange rate targeting is implemented in many developing agricultural economies. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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