A Model of a Small Open Emerging Economy with Full Consumption of Manufactured Products (Stock-Flow Consistent Approach)

The simple model of a small open emerging economy with full consumption of all manufactured products based on stock-flow consistent approach is developed. The transactions-flow matrix for emerging economy is defined. It takes into account banks' lending to produce goods by firms. The model allows investigating impact of change in exchange rate, nominal wage rate, labor productivity and extension of lending on economic growth. An example of numerical calculations is given. It is detected a latent threat that a widely used in emerging economy policy of easing domestic currency could lead to such destructive consequence as reducing domestic consumption. To support domestic consumption it should be raised nominal wage rate with pace comparable with the devaluation one