Trade and Development Review, Vol 9 (2017)

Open Economy Macroeconomics of Balance Sheets, Sectoral interlinkage and the Stabilization Policies: Short period Equilibrium in a Developing Country

Moumita Basu, Ranjanendra Narayan Nag


This paper describes a simple framework of industry agriculture interlinkage for analysis of different aspects of stabilization programme in an open economy. The paper focuses specifically on balance sheet effects of exchange rate depreciation on investment and output. At the heart of the model is the link between exchange rate, food price and industrial employment. The model is used to examine the effects of interest rate policy, fiscal policy, exogenous increase in food production and agricultural exports as well. This paper shows that the quantitative easing may be counterproductive in a developing country.

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