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On the Trade Balance Response to Monetary Shocks : the Marshall-Lerner Conditions Reconside

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Author Info

  • Lombardo, Giovanni

    () (Trinity College, Dublin)

Abstract

This paper studies the applicability of the Marshall-Lerner condition to the “basic” Obstfeld and Rogoff (1995) model. It shows that the Marshall-Lerner condition does apply to this class of models with homothetic preferences when product differentiation across countries is imposed. This paper also shows that, in certain cases, the intertemporal substitution and the dynamic income effect can make the mere elasticity of substitution an insufficient indicator of the response of the current account to monetary shocks.

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Bibliographic Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 16 (2001)
Issue (Month): ()
Pages: 590-616

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Handle: RePEc:ris:integr:0179

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Web page: http://econo.sejong.ac.kr/
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Related research

Keywords: Trade balance; Marshall-Lerner conditions; Elasticity of substitution; Monetary shocks; Transfer problem;

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Cited by:
  1. Lane, Philip R., 2001. "The new open economy macroeconomics: a survey," Journal of International Economics, Elsevier, vol. 54(2), pages 235-266, August.

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