For the problems of the sustainability of the eurozone in its present form and the existence of a choice of alternative ways out of the EU, see the ‘economists’ warning’ published in the Financial Times and signed by a whole range of leading figures in the international academic community (Brancaccio et al. 2013).
In the mainstream analyses, the more or less implicit reference to a ‘natural’ equilibrium determined by ‘fundamentals’ also underlies considerations of a normative character such as the distinction between ‘sustainable’ or ‘coherent’ economic policies and ‘populistic’ or ‘incoherent’ policies (Dornbusch/Edwards 1989; Bordo/Schwartz 1996). For a criticism of this concept of equilibrium, see Kurz/Salvadori (1995) and Pasinetti (2000), among others.
Some models appear to display inconsistencies, however, as in the case where technology is described by means of a traditional neoclassical production function, but a constant functional distribution of income is assumed in the determination of effective demand also in the presence of variation in the ratio of capital to labour (Krugman 1999).
There are, however, also more unusual theses in the mainstream sphere, such as a model of partial equilibrium according to which devaluation prompts immigrant workers to return to their home countries, which reduces the supply of labour, increases the equilibrium real wage on the labour market and thus reduces the levels of employment and production (Mishra/Spilinbergo 2011).
This classification envisions five categories of regime characterised by different kinds of commitment and presented in order from the most rigid to the most flexible (http://www.imf.org/external/np/mfd/er/2006/eng/0706.htm).
It should be noted that the 1992 devaluation of sterling is not included in the sample examined here and does not in fact appear in the IMF classification. Great Britain is registered as having a freely floating regime from the abandonment of Bretton Woods until 2007 and there is therefore no mention of its joining the European Monetary System in 1990 and pulling out in 1992. The decision not to include these British changes of regime in the IMF classification appears questionable. In any case, even if the criterion of inclusion in the IMF list were waived here, the case would still not be included in the sample because the devaluation of 1992 was far below the threshold value of 25 per cent set by Frankel/Rose (1995) and indeed also below 20 per cent.
Variations in the nominal exchange rate lead to variations in the consumer price index for 29.4 per cent of the sample as a whole as against 31.7 per cent and 29.4 per cent respectively for the high-income and low-income groups. Variations in the nominal exchange rate with respect to the US dollar explain 36.3 per cent of the variability of inflation in the low-income group as against 85.6 per cent in the high-income group.
The choice of a fixed-effects rather than a random-effects model has been made on the basis of a Hausman test, which fails to reject the null that random-effect coefficients are inconsistent.
Lowering the threshold to 20 per cent leads to four additions: Colombia 1998, Ecuador 1982, Hungary 1996 and Iceland 2001. Here, too, the operation has been repeated, taking into account the episodes amongst these for which the relevant data are available. (The figures are missing for real wages in Ecuador and real wages and the wage share in Hungary for the years before 1995.)
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