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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.

Suggested Citation

  • David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Relative Price Movements in Dynamic General Equilibrium Models of International Trade," NBER Working Papers 4243, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4243
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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. 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.
    3. Warren Young, 2008. "Negishi's contributions to the development of economic analysis: Research programs and outcomes," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 151-165, June.
    4. Giovanni Lombardo, "undated". "On the trade balance response to monetary shocks: the Marshall-Lerner conditions reconsidered," Discussion Papers 98/5, Department of Economics, University of York.
    5. Mr. Paul Cashin & Mr. C. John McDermott, 1998. "Terms of Trade Shocks and the Current Account," IMF Working Papers 1998/177, International Monetary Fund.
    6. Bernard Dumas, 1993. "Partial- vs general-equilibrium models of the international capital market," Working Papers hal-00610766, HAL.
    7. Lee, Inkoo, 2008. "Goods market arbitrage and real exchange rate volatility," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1029-1042, September.
    8. 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.
    9. Mr. Charles Frederick Kramer, 1996. "FEERs and Uncertainty: Confidence Intervals for the Fundamental Equilibrium Exchange Rate of the Canadian Dollar," IMF Working Papers 1996/068, International Monetary Fund.
    10. 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.
    11. Paul Cashin & C. John McDermott, 2003. "Intertemporal Substitution and Terms‐of‐Trade Shocks," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 604-618, September.
    12. Abdelhak Senhadji, 1997. "Two common problems related to the use of the Armington aggregator in computable general equilibrium models," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 23-25.
    13. Wei Xiao, 2001. "Can Indeterminacy Resolve the Consumption Correlation Puzzle?," Computing in Economics and Finance 2001 209, Society for Computational Economics.
    14. Luis Opazo, 2006. "The Backus-Smith Puzzle: The Role of Expectations," Working Papers Central Bank of Chile 395, Central Bank of Chile.

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