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Relative Price Movements in Dynamic General Equilibrium Models of International Trade

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  • David K. Backus
  • Patrick J. Kehoe
  • Finn E. Kydland

Abstract

We examine the behavior of international relative prices from the perspective of dynamic general equilibrium theory, with particular emphasis on the variability of the terms of trade and the relation between the terms of trade and net exports. We highlight aspects of the theory that are critical in determining these properties, contrast our perspective with those associated with the Marshall-Lerner condition and the Harberger-Laursen-Metzler effect, and point out features of the data that have proved difficult to explain within existing dynamic general equilibrium models.

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 92-25.

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Date of creation: Aug 1992
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Handle: RePEc:ste:nystbu:92-25

Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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References

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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.:
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  1. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 461-484, May.
  2. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  3. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-85, March.
  4. Maurice Obstfeld, 1981. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," NBER Working Papers 0686, National Bureau of Economic Research, Inc.
  5. Marianne Baxter, 1991. "Fiscal policy, specialization, and trade in the two-sector model: the return of Ricardo?," Discussion Paper / Institute for Empirical Macroeconomics 56, Federal Reserve Bank of Minneapolis.
  6. Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 171-201, March.
  7. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  8. William Alterman, 1991. "Price Trends in U.S. Trade: New Data, New Insights," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 109-143 National Bureau of Economic Research, Inc.
  9. Lapham, Beverly J., 1995. "A dynamic general equilibrium analysis of deviations from the laws of one price," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1355-1389, November.
  10. Enrique G. Mendoza, 1992. "The Terms of Trade and Economic Fluctuations," IMF Working Papers 92/98, International Monetary Fund.
  11. Don E. Schlagenhauf & Jeffry M. Wrase, 1992. "A monetary, open-economy model with capital mobility," Discussion Paper / Institute for Empirical Macroeconomics 67, Federal Reserve Bank of Minneapolis.
  12. David K. Backus, 1992. "Interpreting Comovements in the Trade Balance and the Terms of Trade," Working Papers 92-4, New York University, Leonard N. Stern School of Business, Department of Economics.
  13. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
  14. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-80.
  15. Robert F. Graboyes, 1991. "International trade and payments data: an introduction," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 20-31.
  16. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  17. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
  18. Hodrick, Robert J., 1989. "U.S. International capital flows: Perspectives from rational maximizing models," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 30(1), pages 231-288, January.
  19. Brunner, Karl & Meltzer, Allan H., 1986. "Real business cycles, real exchange rates, and actual policies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 1-10, January.
  20. Lucas, Robert E., 1984. "Money in a theory of finance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 9-46, January.
  21. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, December.
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Citations

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Cited by:
  1. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc.
  2. Carmen M. Reinhart, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 290-312, June.
  3. Lombardo, Giovanni, 2001. "On the Trade Balance Response to Monetary Shocks: the Marshall-Lerner Conditions Reconsidered," MPRA Paper 27869, University Library of Munich, Germany.
  4. Lee, Inkoo, 2008. "Goods market arbitrage and real exchange rate volatility," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1029-1042, September.
  5. Paul Cashin & C. John McDermott, 1998. "Terms of Trade Shocks and the Current Account," IMF Working Papers 98/177, International Monetary Fund.
  6. Carmen Reinhart, 1994. "Devaluation, Relative Prices, and International Trade," IMF Working Papers 94/140, International Monetary Fund.
  7. Paul Cashin & C. McDermott, 2002. "Terms of Trade Shocks and the Current Account: Evidence from Five Industrial Countries," Open Economies Review, Springer, vol. 13(3), pages 219-235, July.
  8. Bernard Dumas, 1993. "Partial- Vs. General-Equilibrium Models of the International Capital Market," NBER Working Papers 4446, National Bureau of Economic Research, Inc.
  9. Wei Xiao, 2001. "Can Indeterminacy Resolve the Consumption Correlation Puzzle?," Computing in Economics and Finance 2001 209, Society for Computational Economics.

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