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

Author

Listed:
  • 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.

Suggested Citation

  • Lombardo, Giovanni, 2001. "On the Trade Balance Response to Monetary Shocks : the Marshall-Lerner Conditions Reconside," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 590-616.
  • Handle: RePEc:ris:integr:0179
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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.

    More about this item

    Keywords

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

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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