Exchange Rate Adjustments and the Balance – of - Payments
3 important questions on Exchange Rate Adjustments and the Balance – of - Payments
The Marshall Lerner condition:
If the sum of elasticities is less than 1.0, currency depreciation will cause deterioration in a nation’s trade position.
The types of lags that may occur between changes in relative prices and the quantities of goods traded include the following:
Recognition lags:
Of changing competitive conditions.
Decision lags:
Between the time new orders are placed and when their impact on trade and payment flows it felt.
Replacement lags:
In using up inventories and wearing out existing machinery before placing orders.
Production lags:
Involved in increasing the output of commodities for which demand has increased.
Of changing competitive conditions.
Decision lags:
Between the time new orders are placed and when their impact on trade and payment flows it felt.
Replacement lags:
In using up inventories and wearing out existing machinery before placing orders.
Production lags:
Involved in increasing the output of commodities for which demand has increased.
Exchange rate pass-through:
The extent to which changing currency values lead to changes in import and export prices.
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