The Real Exchange Rate, Terms of Trade and Current Account in an Intermediate Goods Model PDF Download

Author: Paul Johnson
Publisher:
ISBN:
Category : Commerce
Languages : en
Pages : 30

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Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1451930925
Category : Business & Economics
Languages : en
Pages : 56

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Book Description
This paper uses an intertemporal optimizing model of a small open economy to analyze how terms of trade changes affect real exchange rates and the trade balance. We consider temporary current, anticipated future, and permanent changes in the terms of trade. The results suggest that the relationship between the terms of trade and the current account (the so-called Harberger-Laursen-Metzler effect) may be quite sensitive to whether or not the model incorporates nontraded goods. Thus, the real exchange rate may be an important variable through which terms of trade shocks are transmitted to the current account.

Author: Maurice Obstfeld
Publisher:
ISBN:
Category : Commerce
Languages : en
Pages : 28

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This paper studies the macroeconomic effects of an increase in the price of an imported intermediate production input. The framework of the analysis is a small open economy with abating exchange rate and endogenous terms if trade, in which saving depends on residents'(variable) rate of time preference. Contrary to popular conceptions, an intermediate price shock may lead to an appreciation of the exchange rate in both the short run and the long run, and is likely to occasion a current-account surplus. The terms of trade between foreign and domestic finished goods always improve in the long run

Author: Ms.Isabelle Mejean
Publisher: International Monetary Fund
ISBN: 1455218960
Category : Business & Economics
Languages : en
Pages : 31

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A reduction in the U.S. current account deficit vis-à-vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three-country open economy model of the U.S., China, and other emerging Asia. We compare scenarios where both Chinese and other emerging Asian export prices change by the same proportion to the case where export prices remain constant in one country and increase in the other. Our results are robust to different assumptions about elasticities of substitution and to introducing a high degree of vertical fragmentation in production in the model.

Author: Sebastian Edwards
Publisher:
ISBN:
Category : Commerce
Languages : en
Pages : 60

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In this paper a minimal general equilibrium intertemporal model, with optimizing consumers and producers, is developed to analyze the process of real exchange rate determination. The model is completely real, and considers a small open economy that produces and consumes three goods each period. The model is also used to analyze the way in which the current account responds to several shocks. The working of the model is illustrated for the case of two disturbances: the imposition of import tariffs, and external terms of trade shocks. In the case of import tariffs, a distinction is made between temporary, anticipated, and permanent changes. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the equilibrium real exchange rate can be generated. In particular "overshooting" and movements in opposite directions in periods one and two can be observed. Precise conditions under which temporary import tariffs will improve the current account are derived. Finally, several ways in which the model can be extended to take into account other issues such as changes in the fiscal deficit, and financial deregulation are discussed in detail.

Author: Jonathan D. Ostry
Publisher:
ISBN:
Category :
Languages : en
Pages : 56

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Book Description
This paper uses an intertemporal optimizing model of a small open economy to analyzehow terms of trade changes affect real exchange rates and the trade balance. We consider temporary current, anticipated future, and permanent changes in the terms of trade. The results suggest that the relationship between the terms of trade and the current account (the so-called Harberger-Laursen-Metzler effect) may be quitesensitive to whether or not the model incorporates nontraded goods. Thus, the realexchange rate may be an important variable through which terms of trade shocks are transmitted to the current account.

Author: Jonathan David Ostry
Publisher:
ISBN:
Category : Balance of payments
Languages : en
Pages : 116

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Author: Jose De Gregorio
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 32

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The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and present empirical evidence for a sample of fourteen OECD countries. The evidence broadly supports the predictions of the model, namely that faster productivity growth in the tradable relative to the nontradable sector and an improvement in the terms of trade induce a real appreciation.

Author: David C. Parsley
Publisher:
ISBN:
Category :
Languages : en
Pages : 26

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We suggest it may be quot;too easyquot; to attribute real exchange rate movements to law of one price deviations. We show that it is immaterial whether one uses seemingly traded goods, nontraded goods, or even just a single, unimportant consumer good, say beer. The ease of attributing the variation to any such deviations is explained using a model with intermediate goods trade. In the model, the stage of production determines the traded/nontraded distinction. We find empirical substantiation for the model: law of one price deviations lose explanatory power; and - defined appropriately in terms of intermediate goods - relative prices matter.

Author: Robert C. Feenstra
Publisher: University of Chicago Press
ISBN: 0226239721
Category : Business & Economics
Languages : en
Pages : 603

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Book Description
In less than three decades, China has grown from playing a negligible role in international trade to being one of the world's largest exporters, a substantial importer of raw materials, intermediate outputs, and other goods, and both a recipient and source of foreign investment. Not surprisingly, China's economic dynamism has generated considerable attention and concern in the United States and beyond. While some analysts have warned of the potential pitfalls of China's rise—the loss of jobs, for example—others have highlighted the benefits of new market and investment opportunities for US firms. Bringing together an expert group of contributors, China's Growing Role in World Trade undertakes an empirical investigation of the effects of China's new status. The essays collected here provide detailed analyses of the microstructure of trade, the macroeconomic implications, sector-level issues, and foreign direct investment. This volume's careful examination of micro data in light of established economic theories clarifies a number of misconceptions, disproves some conventional wisdom, and documents data patterns that enhance our understanding of China's trade and what it may mean to the rest of the world.