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Intermediate imports, the terms of trade, and the dynamics of the exchange rate and current account

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  • Obstfeld, Maurice

Abstract

This 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 Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 10 (1980)
Issue (Month): 4 (November)
Pages: 461-480

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Handle: RePEc:eee:inecon:v:10:y:1980:i:4:p:461-480

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. 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.
  2. Van Duyne, Carl, 1979. "The macroeconomic effects of commodity market disruptions in open economies," Journal of International Economics, Elsevier, vol. 9(4), pages 559-582, November.
  3. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Reinhart, Carmen, 1988. "Commodity markets and the international transmission of fiscal shocks," MPRA Paper 13411, University Library of Munich, Germany.
  2. Paul R. Krugman, 1980. "Oil and the Dollar," NBER Working Papers 0554, National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld, 1983. "Intertemporal Price Speculation and the Optimal Current-Account Deficit," NBER Working Papers 1100, National Bureau of Economic Research, Inc.
  4. 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.).
  5. 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.
  6. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, 02.
  7. 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.
  8. 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.
  9. Nancy Peregrim Marion, 1981. "Anticipated and Unanticipated Oil Price Increases and the Current Account," NBER Working Papers 0759, National Bureau of Economic Research, Inc.

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