Carnevali, E, Fontana, G orcid.org/0000-0002-8055-5326 and Veronese Passarella, M orcid.org/0000-0001-7652-5952 (2020) Assessing the Marshall–Lerner condition within a stock-flow consistent model. Cambridge Journal of Economics, 44 (4). pp. 891-918. ISSN 0309-166X
Abstract
We derive the general equilibrium condition for the terms of trade in a two-country economy model. We show that the Marshall–Lerner condition is only a special case of this condition, in which a full exchange rate pass-through to import prices is assumed. In fact, the Marshall–Lerner condition is not even a ‘useful approximation’ of the general condition. For the full pass-through assumption has destabilising, rather than stabilizing, effects, when it is introduced in a stock-flow consistent dynamic model. More generally, the higher (lower) the pass-through, the slower (quicker) is the adjustment of the economy towards the equilibrium. This is tantamount to saying that the speed of adjustment is a positive function of the strategic behaviour of the exporters, who attempt to retain their market share by keeping their foreign currency-denominated prices unchanged.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © The Author(s) 2020. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved. |
Keywords: | E12 - Keynes; Keynesian; Post-KeynesianF41 - Open Economy MacroeconomicsF47 - Forecasting and Simulation: Models and Applications |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Business (Leeds) > Economics Division (LUBS) (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 28 Oct 2019 12:14 |
Last Modified: | 11 Feb 2022 01:38 |
Status: | Published |
Publisher: | Oxford University Press |
Identification Number: | 10.1093/cje/bez060 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:152664 |