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A MethodFor Separating Iincome & Substitution Effects Of Exchange Rate Changes On Aggregate Demand

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Author Info
John J. Heim () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

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Abstract

Regression estimates of exchange rate total effects on aggregate demand are broken into separate income and substitution effects. Total effects estimates can seem contrary to theory. Separating them into their two components shows this is not the case. The separation method also provides a simple test to determine if imports are normal or inferior goods. The paper finds consumer imports are normal goods, but investment imports are inferior goods. The paper shows that if import total effects exceed domestic total effects, imports are a normal good. If smaller, they are inferior goods.

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Publisher Info
Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0901.

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Date of creation: Feb 2009
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Handle: RePEc:rpi:rpiwpe:0901

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Web page: http://www.economics.rpi.edu/
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Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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This page was last updated on 2009-11-17.

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