TRANSACTION COSTS, MULTIPLE EQUILIBRIA, AND THE MUNDELL PROPOSITION
Journal Title: Asian Economic and Financial Review - Year 2014, Vol 4, Issue 11
Abstract
This paper inserts Coase (1937) assertion into Mundell (1963) model. That is, investigating the robustness of Mundell (1963) proposition with the consideration of transaction costs in the labor market. The result shows that the existence of transaction costs makes the externalities of transaction costs in the labor market. Therefore, labor market appears to be multiple equilibria. If labor market appears as low-employment equilibrium, the Mundell proposition cannot work thoroughly under both fixed and flexible exchange rates. If labor market appears as high-employment equilibrium, the Mundell proposition is valid under fixed exchange rates but will be invalid under flexible exchange rates.
Authors and Affiliations
Hong-Yu Lin| Department of Business and Management, Ming Chi University of Technology, Taishan, Taiwan
Keywords
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