Intermediate imports, the terms of trade, and the dynamics of the exchange rate and current account
AbstractThis paper studies the macroeconomic effects of an increase in the price of an imported intermediate production input. The framework of the analysis is a small open economy with abating exchange rate and endogenous terms if trade, in which saving depends on residents'(variable) rate of time preference. Contrary to popular conceptions, an intermediate price shock may lead to an appreciation of the exchange rate in both the short run and the long run, and is likely to occasion a current-account surplus. The terms of trade between foreign and domestic finished goods always improve in the long run.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 10 (1980)
Issue (Month): 4 (November)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Maurice Obstfeld, 1981. "Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account," NBER Working Papers 0540, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
- Krugman, Paul & Taylor, Lance, 1978.
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Journal of International Economics,
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- Lars E.O. Svensson, 1982. "Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach," NBER Working Papers 0991, National Bureau of Economic Research, Inc.
- Nancy Peregrim Marion, 1981. "Anticipated and Unanticipated Oil Price Increases and the Current Account," NBER Working Papers 0759, National Bureau of Economic Research, Inc.
- Charles Wyplosz, 1991. "On the real exchange rate effect of German unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 1-17, March.
- Nancy Peregrim Marion & Lars E.O. Svensson, 1982. "Structural Differences and Macroeconomic Adjustment to Oil Price Increases in a Three-Country Model," NBER Working Papers 0839, National Bureau of Economic Research, Inc.
- Colin Lawrence, 1983. "The impact of supply side policy rules on exchange rates, interest rates and the terms of trade: an exploration under alternative price rules," International Finance Discussion Papers 225, Board of Governors of the Federal Reserve System (U.S.).
- Reinhart, Carmen, 1988. "Commodity markets and the international transmission of fiscal shocks," MPRA Paper 13411, University Library of Munich, Germany.
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