Expanding Exports and the Structure of the Domestic Economy: A Monetary Analysis*

Stephen J Turnovsky

The Economic Record, 1983, vol. 59, issue 3, 245-259

Abstract: This paper analyzes the dynamic adjustments of a small, open economy faced with the certain prospect of a future export (resources) boom. It is shown how the adjustment occurs in three phases. First, the initial expectation generates an immediate (discrete) appreciation of the exchange rate. Secondly, prior to the export boom, the exchange rate continues to appreciate gradually, while a dissimulation of bond holdings by domestic residents occurs, After the boom, the exchange rate gradually appreciates further while the balance of trade moves into surplus and domestic residents begin to accumulate bond holdings. These adjustments are rejected in the movement of the relative price of traded to non‐traded goods and the implications of this for the structural adjustment of domestic industry are discussed.

Date: 1983
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