Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?
This paper investigates the spending and current-account effects of permanent terms-of-trade shifts in a model where households maximize utility over an infinite planning period. In the framework we adopt, an economy specialized in production must experience a fall in aggregate spending and a current surplus when the terms of trade permanently deteriorate The model thus provides a counter-example to the argument of Laursen and Idetzler (1950) and Harberger (1950) that a permanent worsening in the terms of trade must produce a current-account deficit.
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| Length: | |
| Date of creation: | Jun 1981 |
| Date of revision: | |
| Publication status: | published as Obstfeld, Maurice. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect." The Quarterly Journal of Economics, (May 1982), pp. 251-270. |
| Handle: | RePEc:nbr:nberwo:0686 |
| Note: | ITI IFM |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
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References listed on IDEAS
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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 710-16, September.
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