Working Paper
Terms of trade, the trade balance, and stability: the role of savings behavior
Abstract: In conventional models of the open economy, the impact on the trade balance of a change in the terms of trade depends upon whether the Marshall-Lerner condition on demand elasticities is satisfied. This paper shows that, in a model which incorporates rational savings behavior, the link between the Marshall-Lerner condition and stability may survive intact or may be severed, depending upon the precise formulation of savings behavior.
Keywords: International trade; Balance of trade;
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Bibliographic Information
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: International Finance Discussion Papers
Publication Date: 1991
Number: 397