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Exchange Rate, Cross Elasticities Between Exports and Imports and Current Account Sustainability: The Spanish Case

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  • Luis Sastre

    (Universidad Nacional de Educaci¨®n a Distancia, Calle de Juan del Rosal, 14, 28040 Madrid, SPAIN)

Abstract

This paper presents an analytical reformulation of the traditional approach to current account sustainability. We adopt a perspective according to which the independence of GDP and exchange rates cannot be postulated in very open economies, hence, the Marshall-Lerner condition cannot be met. Therefore, we analyze four different propositions based on different cross elasticities between exports and imports. Those propositions have theoretical implications about sustainability of the current account and the external debt . We use a dynamic stochastic general equilibrium (DGSE) macroeconomic model to simulate the impact of variations in exchange rates, cross elasticity between imports and exports, and consumption tax rate on the Spanish economy and, particularly, on its current account sustainability.

Suggested Citation

  • Luis Sastre, 2016. "Exchange Rate, Cross Elasticities Between Exports and Imports and Current Account Sustainability: The Spanish Case," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 32-46, November.
    • Handle: RePEc:bap:journl:160403
    as

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    References listed on IDEAS

    as
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    7. Sastre, Luis, 2012. "Simultaneity between export and import flows and the Marshall–Lerner condition," Economic Modelling, Elsevier, vol. 29(3), pages 879-883.
    8. Fernández-de-Córdoba, Gonzalo & Torres, José L., 2012. "Fiscal harmonization in the European Union with public inputs," Economic Modelling, Elsevier, vol. 29(5), pages 2024-2034.
    9. Juncal Cunado & Luis Alberiko Gil-Alana & Fernando Perez de Gracia, 2008. "New Evidence on US Current Account Sustainability," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(1), pages 1-21, April.
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    Cited by:

    1. Luis Sastre, 2018. "Marshall-Lerner Condition and the Balance of Payments Constrained Growth: The Spanish Case," Review of Economics & Finance, Better Advances Press, Canada, vol. 13, pages 29-38, August.

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    More about this item

    Keywords

    Marshall-Lerner condition; Current account sustainability; Macroeconomic model of dynamic stochastic general equilibrium; Cross elasticities export-import;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F30 - International Economics - - International Finance - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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