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  • Exchange rate changes and endogenous terms of trade effects in a small open economy

    Author(s)
    Swift, Robyn
    Griffith University Author(s)
    Swift, Robyn F.
    Year published
    2004
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    Abstract
    This paper shows that the small-country assumption of dependent-economy models is unlikely to hold for many of the cases in which this class of models is used, for example, in the analysis of a terms of trade shock in the "commodity currency" models. When a shock affects most or all of the small countries exporting a commodity, the combined exchange rate effects will result in endogenous terms of trade changes even for those countries too small to individually affect world markets. The paper also explores the possible implications of these secondary terms of trade changes for the dependent-economy models.This paper shows that the small-country assumption of dependent-economy models is unlikely to hold for many of the cases in which this class of models is used, for example, in the analysis of a terms of trade shock in the "commodity currency" models. When a shock affects most or all of the small countries exporting a commodity, the combined exchange rate effects will result in endogenous terms of trade changes even for those countries too small to individually affect world markets. The paper also explores the possible implications of these secondary terms of trade changes for the dependent-economy models.
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    Journal Title
    Journal of Macroeconomics
    Volume
    26
    Publisher URI
    http://www.elsevier.com/wps/find/journaldescription.cws_home/622617/description#description
    Copyright Statement
    © 2004 Elsevier : Reproduced in accordance with the copyright policy of the publisher : This journal is available online - use hypertext links.
    Subject
    Economic Theory
    Applied Economics
    Publication URI
    http://hdl.handle.net/10072/5405
    Collection
    • Journal articles

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