Søren Bo Nielsen (Institute of Economics, University of Copenhagen)
Abstract
This article considers the consequences of a terms of trade deterioration in a small, open economy that imports intermediates and investment goods from abroad. We find that a positive current account effect of a permanent terms of trade deterioration is very likely. As to the effects of a (short-lived) temporary worsening of the trade, the current account effect depends crucially on what is implied by the worsening; specifically: does it involve a change in the price of foreign assets relative to the price of domestic goods?
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Publisher Info
Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
89-21.
Length: 23 pages Date of creation: Oct 1989 Date of revision: Handle: RePEc:kud:kuiedp:8921
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