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An Australian Model: Nontraded Goods, Real Exchange Rates and Unemployment

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  • Paul Oslington

Abstract

A popular model for considering many international trade and macroeconomic questions is the ‘Australian model’ of Wilson, Swan and Salter. This paper develops a general equilibrium trade version of the ‘Australian model’ where unemployment comes from a specified factor market distortion, and considers the effects of immigration, transfers, changes in wage fixing arrangements, terms of trade shocks, tariffs and devaluations. Debates over policies for external and internal balance are revisited, with the advantage that the general equilibrium specification allows welfare consequences of various alternatives to be explicitly considered. In the model external balance is achieved through a flexible exchange rate and the most attractive policies for achieving internal balance are encouraging skilled immigration and skill augmenting technical change, training, and unskilled wage cuts (accompanied by redistribution to affected workers). Foreign borrowing, import tariffs and currency devaluation are problematic policies from a welfare point of view.

Suggested Citation

  • Paul Oslington, 2001. "An Australian Model: Nontraded Goods, Real Exchange Rates and Unemployment," Australian Economic Papers, Wiley Blackwell, vol. 40(3), pages 334-357, September.
    • Handle: RePEc:bla:ausecp:v:40:y:2001:i:3:p:334-357
    DOI: 10.1111/1467-8454.00130
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