Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?
This paper investigates the spending and current-account effects of terms-of-trade shifts in a model where households maximize utility over an infinite planning period. In the framework developed here, an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated, permanent worsening in its terms of trade. The paper's model thus provides a setting in which the current-account deficit predicted by Laursen and Metzier, Harberger, and others fails to materialize.
Volume (Year): 97 (1982)
Issue (Month): 2 ()
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- Rodriguez, Carlos Alfredo, 1976. "The Terms of Trade and the Balance of Payments in the Short Run," American Economic Review, American Economic Association, vol. 66(4), pages 710-716, September.
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