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

3 Citations (Scopus)
53 Downloads (Pure)

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
Pages (from-to)722-760
Number of pages39
JournalReview of Political Economy
Volume36
Issue number2
Early online date29 Jun 2022
DOIs
Publication statusPublished - 2 Apr 2024

Keywords

  • Open economy
  • foreign investments
  • inequality
  • stock-flow consistency

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