Labor market heterogeneity and optimal exchange rate regimes in resource-rich Arab countries

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This chapter attempts to incorporate the role of labor market flexibility in a unified theoretical framework of optimal exchange rate policies for resource-rich economies. For that purpose, the chapter extends the standard rules-versus-discretion model of monetary policy to allow for different assumptions about wage rigidities. The analysis suggests that when all prices are exogenous and wages are all optimally indexed to inflation (i.e., labor market flexibility case), fixed exchange rate regimes deliver more desirable outcomes in terms of real output, inflation and insulation against external shocks compared to flexible exchange rate regimes. Meanwhile, the fixity of exchange rates combined with rigid goods and labor markets can add to real appreciations.

Original languageEnglish
Title of host publicationUnderstanding and Avoiding the Oil Curse in Resource-Rich Arab Economies
PublisherCambridge University Press
Pages301-321
Number of pages21
ISBN (Electronic)9781316493854
ISBN (Print)9781107141728
DOIs
Publication statusPublished - Jan 1 2016

Keywords

  • Arab region
  • GCC
  • Labor market flexibility
  • Monetary policy credibility
  • Oil curse
  • Optimal exchange rate regime

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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  • Cite this

    Al Abri, A-M. S. (2016). Labor market heterogeneity and optimal exchange rate regimes in resource-rich Arab countries. In Understanding and Avoiding the Oil Curse in Resource-Rich Arab Economies (pp. 301-321). Cambridge University Press. https://doi.org/10.1017/CBO9781316493854.011