Relative Price Movements in Dynamic General Equilibrium Models of International Trade

51 Pages Posted: 18 Jul 2007 Last revised: 13 Aug 2010

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Finn Kydland

Carnegie Mellon University - David A. Tepper School of Business; Norwegian School of Economics (NHH) - Department of Economics

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1992

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

Backus, David K. and Kydland, Finn E. and Kehoe, Patrick J., Relative Price Movements in Dynamic General Equilibrium Models of International Trade (December 1992). NBER Working Paper No. w4243. Available at SSRN: https://ssrn.com/abstract=478700

David K. Backus (Contact Author)

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Finn E. Kydland

Carnegie Mellon University - David A. Tepper School of Business ( email )

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Norwegian School of Economics (NHH) - Department of Economics

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Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department ( email )

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University of Minnesota - Twin Cities - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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