The role of financial sector in general and macroeconomic policy in particular is a crucial issue in the study of macroeconomic behaviour of developing countries. This article addresses this issue in terms of a dynamic dependent economy model consisting of traded and non-traded sectors. We use perfect foresight and focus on wage gap between skilled and unskilled labour along with unemployment and movement of asset prices. Based on the structure of the model we examine multitude of transmission mechanisms with implications of monetary policy and decrease in oil subsidy. The several cross effects induced by change in system of parameters have their profound bearing on exchange rate, Tobin’s q, wage gap, level of employment and the sectoral composition output.
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