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David K. Backus, Patrick J. Kehoe, Finn E. Kydland
NBER Working Paper No. 4243*
Issued in December 1992
NBER Program(s): ITI
---- Abstract -----
We examine the behavior of international relative prices from the perspective of dynamic general equilibrium theory, with particular emphasis on the variability of the terms of trade and the relation between the terms of trade and net exports. We highlight aspects of the theory that are critical in determining these properties, contrast our perspective with those associated with the Marshall-Lerner condition and the Harberger-Laursen-Metzler effect, and point out features of the data that have proved difficult to explain within existing dynamic general equilibrium models.
*Published: R. van der Ploeg ed.: Handbook of International Macroeconomics(Blackwell 1994)
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