Relative Price Movements in Dynamic General Equilibrium Models of International Trade
51 Pages Posted: 18 Jul 2007 Last revised: 13 Aug 2010
Date Written: December 1992
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.
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