The Role of Distribution of the Income Shares of Individuals in Tradables and Nontradables on Exchange Rate Fluctuations and Delay of Stabilizations

Aysan, Ahmet Faruk (2006): The Role of Distribution of the Income Shares of Individuals in Tradables and Nontradables on Exchange Rate Fluctuations and Delay of Stabilizations.

Abstract

This paper shows that exchange rate alignments are also used for the redistribution of income among different groups. The heterogeneous impacts of stabilization policies lead to formation of various coalitions throughout the evolution of stabilization programs. These coalitions can produce unsustainable economic policies at the expense of other groups. The model categorizes these various groups with respect to their shares in total production of tradables and nontradables. An increase in the relative prices of nontradables benefits the poor more than the rich and middle classes. In addition to the poor, the rich benefit from unsustainable macroeconomic polices by lending to the government and eventually escaping the cost of stabilization in the long run.

• Item Type: MPRA Paper
• Institution: Bogazici University
• Language: English
• Keywords: Stabilization policies; Overvaluation; Redistribution; Exchange Rate Fluctuations
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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