Document Type

Working Paper

Journal/Book Title/Conference

Journal of Development Economics

Volume

42

Article

1092

Issue

1

Pages

111-131

Publication Date

11-1989

Department or Program

Economics Department

Abstract

This paper argues that, in economies heavily dependent on imported inputs, the responsiveness of price and output to cost and demand factors are altered by foreign exchange bottlenecks if the government resorts to nonmarket allocation of import licenses. A model of price and output determination that captures this stipulation is presented. Estimation results for the Turkish manufacturing industry over the 1952-80 period support the hypothesis that price and output elasticities are different between the import crisis and noncrisis periods. Most importantly, monetary expansion is inflationary when there are important bottlenecks but has real output effects otherwise.

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