Open AccessMarshall-Lerner conditions and their policy implications
Author(s) -
Ljubomir Madžar
Publication year - 2006
Publication title -
economic annals/ekonomski anali
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.148
H-Index - 12
eISSN - 1820-7375
pISSN - 0013-3264
DOI - 10.2298/eka0670090m
Subject(s) - economics , devaluation , balance of payments , monetary economics , exchange rate , inflation (cosmology) , currency , international economics , macroeconomics , econometrics , physics , theoretical physics
Marshall-Lerner conditions are firstly derived on the basis of alternatively defined elasticities: elasticities of domestic demand for imports and domestic supply of exports and, next, four elasticities consisting of the above mentioned coefficients and, in addition to them, elasticities of foreign supply of imports to and foreign demand for exports of the observed country. All these coefficients are specified with respect to the alternatively defined exchange rates: as the number of the domestic currency units for a unit of conveniently chosen foreign currency, and vice versa. The above stated combinations of elasticities are, again alternatively related to the nominal and to the real exchange rates. Mathematical interdependencies among thus formulated stability conditions are examined to some detail. The results are applied to the current policy dilemmas at to whether devaluation would significantly affect balance of payments and what would be its effects on the inflation rate