Assuming an open economy where wage bargaining finds its equilibrium independently of import prices (which implies a
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Question:
Assuming an open economy where wage bargaining finds its equilibrium independently of import prices (which implies a vertical ERU curve as in Carlin & Soskice 2014), and ignoring short-term dynamics, illustrate with a diagram how the medium-run equilibrium real exchange rate is affected by a permanent positive supply shock.
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