Exchange Rate Changes and the Choice of Technique

L. Mainwaring

Chapter 15 in Fundamental Issues in Trade Theory, 1979, pp 188-200 from Palgrave Macmillan

Abstract: Abstract Shortly after the appearance of his ‘absorption’ approach to the effects of devaluation, S. S. Alexander [1] was criticised by Fritz Machlup [3] for conducting his argument in terms of the overall price level rather than in terms of relative prices and, therefore, failing to take account of resource allocation effects resulting from relative price changes. In this essay we consider a dynamic absorption model (dynamic in the sense of steady growth) which is of a rather more disaggregated variety than usual. Since it is set in a Sraffa-Leontief framework relative prices are of central importance, but not merely because of straightforward consumer substitution effects. Because of production interrelationships, relative prices exercise an influence on the choice of technique appropriate to any exchange rate. This, in turn, may lead to modifications of the traditional absorption conclusions.

Keywords: Exchange Rate; Trade Balance; Steady Growth; Price Equation; Trade Theory (search for similar items in EconPapers)
Date: 1979
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-04378-1_15

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DOI: 10.1007/978-1-349-04378-1_15

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