Price Mechanism and Endogenous Productivity in an Open Economy Stock-Flow Consistent Model

Carnevali, Emilio (2020) Price Mechanism and Endogenous Productivity in an Open Economy Stock-Flow Consistent Model. Metroeconomica. ISSN 0026-1386 (In Press)

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Official URL: https://doi.org/10.1111/meca.12309

Abstract

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.

Item Type: Article
Uncontrolled Keywords: Balance of payments, countercyclical fiscal policy, productivity, two-country model
Subjects: L100 Economics
N300 Finance
N400 Accounting
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: Elena Carlaw
Date Deposited: 28 Jul 2020 14:25
Last Modified: 18 Aug 2020 13:00
URI: http://nrl.northumbria.ac.uk/id/eprint/43909

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