This paper examines the impact of improvements in productivity on prices, output, the real wage rate and the balance of payments. Within the context of the model used in this paper, an improvement in productivity can take two alternative forms: (1) a cost saving for a given output and (2) an increase in production without a direct decrease in employment. The results presented are based on a simple model of a small open economy that includes some key features of less developed economies. It is shown that, in the presence of monetary and fiscal restraints, an improvement in productivity leads to increases in output, employment and the real wage and the effect on the balance of payments, in the short and the medium runs, is also positive. We find that whether or not improvement in productivity is import saving plays a crucial role in both comparative static and simulation exercises.

There is an ongoing controversy over whether banks' mortgage rates rise more rapidly than they fall due to their asymmetric responses to changes in the cash rate. This paper examines the dynamic interplay between the cash rate and the standard variable mortgage rate using monthly data in the post-1989 era. Unlike previous Australian studies, our proposed threshold and asymmetric error-correction models account for both the amount and adjustment asymmetries. We found that the Reserve Bank of Australia's rate rises have a much larger and more instantaneous impact on the mortgage rate than rate cuts.

Within the context of a product variety model, this paper examines the impact of international outsourcing of some skill intensive tasks on wage inequality. We consider four possibilities: long-run equilibrium where varieties of producer services are non-traded, long-run equilibrium where varieties of producer services are traded, short-run equilibrium where varieties of producer services are non-traded and short-run equilibrium where varieties of producer services are traded. It is shown that in each case, under certain conditions, international outsourcing can increase skilled-unskilled wage inequality. In the first three cases, outsourcing affects wage inequality directly as well as indirectly. In the short-run equilibrium, where varieties of producer services are traded, international outsourcing increases skilled-unskilled wage inequality only through an indirect channel. In the short-run equilibrium, where all goods are traded, the impact of outsourcing on wage inequality depends solely on the relative size of the income share of capital. Furthermore, in the long-run equilibrium, outsourcing increases the productivity of the industrial sector.