A modified Kaldorian model of cumulative causation
The objective of this article is to present a modified Kaldorian cumulative causation model in order to discuss the effects of changes in the rules of monetary policy and in the degree of openness in the capital account over the time path of real output, nominal interest rates and inflation. In the model to be developed here, we will do some modifications to the basic structure of the standard Kaldorian cumulative causation model. First of all, as suggested by Palley (2002), we will add two new equations to the standard model with the purpose to analyze the dynamics of the economy's productive capacity. Second, we will suppose that the rate of change of nominal wages is not uniform in the world economy, but that it is country-specific. In this setting, we will suppose that domestic Labor Unions can manage to fix the rate of change in nominal wages at a rate equal to the inflation rate of the last period plus all the productivity gains occurred in the last period. Third, we will suppose an economy that operates under a floating exchange-rate regime in a setting of restricted (imperfect) capital mobility due to the presence of some form of capital controls. Finally, we will suppose that monetary policy is conducted under the institutional framework of an inflation targeting regime, and the Central Bank sets nominal interest rates at each period based on a version of the so-called "Taylor rule".
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| Format: | Digital revista |
| Language: | English |
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Universidad Nacional Autónoma de México, Facultad de Economía
2009
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| Online Access: | http://www.scielo.org.mx/scielo.php?script=sci_arttext&pid=S0185-16672009000200001 |
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