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I see your point (main article) applied to a large and relatively closed economy, such as the USA. But in the case of a small open economy, with a fixed exchange rate, wouldn't it be different, with the non-tradeable sector working under monopolistic competition, but the tradeable sector working closer to perfect competition (with consequences for the macro equilibrium)? And in this case, if, for instance, the real exchange rate becomes (and remains) overvalued, couldn't the situation resemble the Cuban economy problem (in terms of "national" aggregates), with persistent excess demand (cleared, in this case, through the accumulation of external deficits and debt)?
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Posted Jan 10, 2010 at VB's blog
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Jan 10, 2010