The production structure, exchange rate preferences and the short-run—Medium-run macrodynamics

• The production structure is embedded in the parameters of the macro model. The model discusses how these parameters affect the equilibrium values of employment, growth and wage shares both in the short run (when the rate of capital utilization is in equilibrium) and the medium run (when the external sector and the labor market are in equilibrium).
• The paper discusses some important links between Neo-Kaleckian models and the Balance-of-Payments constrained growth models and the Latin American structuralist tradition.
• It suggests that in order to attain full employment and higher growth it is necessary to combine Keynesian macroeconomic policies with industrial and technological policies for structural change.

This paper focuses on the role of the production structure in shaping output shares, wage bargaining and the dynamics of the real exchange rate in a Neo-Kaleckian macroeconomic model. While changes in the rate of capital utilization ensure the short-run equilibrium, in the medium run the real exchange rate must adjust to stabilize the labor market and the external sector. Interestingly, these variables define a trilemma in which it is not possible for workers to have their desired wage share, for firms to have their desired profit share in output and for the economy to have a stable deficit in current account to GDP ratio at the same time. Structural change allows for a way out of the trilemma as it makes possible a higher wage share for a given profit share with external equilibrium. The corollary is that distribution and high employment cannot be sustained solely by conventional fiscal and monetary policies: they also require industrial and technological policies that redefine the structural parameters of the system, as a form of reconciling conflicting claims with external equilibrium.