TY  - JOUR
AU  - Obstfeld,Maurice
TI  - Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 540
PY  - 1981
Y2  - May 1981
UR  - http://www.nber.org/papers/w0540
L1  - http://www.nber.org/papers/w0540.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
AB  - This paper studies the macroeconomic effects of an increase in the price of an imported intermediate production input. The framework of the analysis is a small open economy with abating exchange rate and endogenous terms if trade, in which saving depends on residents'(variable) rate of time preference. Contrary to popular conceptions, an intermediate price shock may lead to an appreciation of the exchange rate in both the short run and the long run, and is likely to occasion a current-account surplus. The terms of trade between foreign and domestic finished goods always improve in the long run.
ER  -