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Relative Price Movements in Dynamic General Equilibrium Models of International Trade

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

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4243.

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Date of creation: Dec 1992
Date of revision:
Publication status: published as R. van der Ploeg ed.: Handbook of International Macroeconomics(Blackwell 1994)
Handle: RePEc:nbr:nberwo:4243
Note: ITI
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  1. 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.
  2. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  3. 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.
  4. 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.
  5. 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.
  6. Enrique G. Mendoza, 1992. "The Terms of Trade and Economic Fluctuations," IMF Working Papers 92/98, International Monetary Fund.
  7. Backus, David K., 1993. "Interpreting comovements in the trade balance and the terms of trade," Journal of International Economics, Elsevier, vol. 34(3-4), pages 375-387, May.
  8. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, June.
  9. 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.
  10. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the S-curve," Working Paper 9211, Federal Reserve Bank of Cleveland.
  11. Maurice Obstfeld, 1988. "Fiscal Deficits and Relative Prices in a Growing World Economy," NBER Working Papers 2725, National Bureau of Economic Research, Inc.
  12. Beverly J. Lapham, 1990. "A Dynamic, General Equilibrium Analysis of Deviations From the Laws of One Price," Working Papers 793, Queen's University, Department of Economics.
  13. 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.
  14. Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
  15. 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.
  16. 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.
  17. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
  18. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  19. Robert F. Graboyes, 1991. "International trade and payments data: an introduction," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 20-31.
  20. 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.
  21. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
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