Effects of Macroeconomic Policies on Sectoral Prices |
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| Authors: | Mundlak Yair; Cavallo Domingo; Domenech Roberto |
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| Institution: | Yair Mundlak is a professor at the University of Chicago and a research fellow at the International Food Policy Research Institute. Domingo Cavallo and Roberto Domenech are economists at Instituto de Estudios Economicos sobre la Realidad Argentina y Latinoamericana, Fundacion Mediteranea. In revising the paper, the authors benefited from comments by Maurice Schiff and the referees. |
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| Abstract: | The effect of macroeconomic policies on the relative pricesof internationally traded and domestic goods has been the subjectof extensive study. Analysis of the way in which these policiesthen affect prices at the sectoral level is complicated by theheterogeneity of sectoral production: even the prices of singleproducts usually are determined by both domestic and tradedcomponents. We present a framework which first traces the influenceof macropolicy on the relative prices of exports, imports, andhome goods. It then accounts for each sector's degree of "tradability,"which is based on the importance of trade in sectoral income,and the influence of macroeconomic policy on sectoral prices.To illustrate the use of this approach, it is applied to a simulationof trade liberalization in Argentina. Our results suggest thateconomywide policies had substantial negative effects on boththe real exchange rate and the incentives to agricultural exports. |
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