Terms of trade, the trade balance, and stability: the role of savings behavior

Michael K. Gavin

No 397, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In conventional models of the open economy, the impact on the trade balance of a change in the terms of trade depends upon whether the Marshall-Lerner condition on demand elasticities is satisfied. This paper shows that, in a model which incorporates rational savings behavior, the link between the Marshall-Lerner condition and stability may survive intact or may be severed, depending upon the precise formulation of savings behavior.

Keywords: International trade; Balance of trade (search for similar items in EconPapers)
Date: 1991
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