Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?

34 Pages Posted: 18 Aug 2004

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: June 1981

Abstract

This paper investigates the spending and current-account effects of permanent terms-of-trade shifts in a model where households maximize utility over an infinite planning period. In the framework we adopt, an economy specialized in production must experience a fall in aggregate spending and a current surplus when the terms of trade permanently deteriorate The model thus provides a counter-example to the argument of Laursen and Idetzler (1950) and Harberger (1950) that a permanent worsening in the terms of trade must produce a current-account deficit.

Suggested Citation

Obstfeld, Maurice, Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect? (June 1981). NBER Working Paper No. w0686. Available at SSRN: https://ssrn.com/abstract=349086

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://emlab.berkeley.edu/users/obstfeld/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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