Inequality and exchange rate movements in an open-economy macroeconomic model

Emilio Carnevali*, Francesco Ruggeri, Marco Veronese Passarella

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This article presents a complete macroeconomic (SFC) model to study income and wealth distribution in an open economy. We argue that exchange rates and the stock of foreign debt play a major role in shaping inequality across and within countries. Using the ‘relative income hypothesis’, we show that debt-financed consumption of low-income households can affect both total income and the disposable income of high-income households in the medium run. In addition, while higher inequality is detrimental to the domestic economy, it can benefit trading partners.

Original languageEnglish
Number of pages39
JournalReview of Political Economy
Early online date29 Jun 2022
DOIs
Publication statusE-pub ahead of print - 29 Jun 2022

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