marshall lerner condition

marshall lerner condition -...

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i) Domestic and foreign prices remain constant, therefore one can use the nominal exchange rates as the real  exchange rates ii ) Supply elasticities are infinite, therefore changes in the trade balance is affected only by changes in the demand iii ) At the time of depreciation (or appreciation) concerned, the trade balance is zero iv) There is no 'cross price' elasticities between exports and imports, therefore imports and exports are independent  of each other v) Income levels between exporters and importers are kept constant, therefore demand is only affected by the  exchange rate technical reason why a reduction in value of a nation's currency need not immediately improve its balance of payments . [1] The condition states that, for a currency devaluation to have a positive impact on trade balance , the sum of price elasticity of exports and imports (in absolute value ) must be greater than 1.
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This note was uploaded on 01/08/2012 for the course ECON 3580 taught by Professor Jb during the Fall '11 term at York University.

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