EFFICIENT BARGAINS AND CURRENCY DEVALUATION

This paper proposes a new route, namely efficient bargains between the union and the firm over wage and employment, to shed Eight on the con tractionary effects of a currency devaluation. It is found that a curr ency devaluation will definitely depress the supply of domestic goods when the union and the firm negotiate an efficient wage-employment con tract. Thus our result can be regarded as a theoretical vehicle for ex plaining the empirical findings of the contractionary devaluation.