Hey hii
Can u please tell me where to read from for this marshal lerner topic.
Thanx
On Jun 17, 2015 3:02 PM, "dhruv [via Discussion forum]" <
[hidden email]> wrote:
If, E = domestic currency in terms of foreign currency, and
e = real exchange rate(domestic good in terms of foreign good)
then, [e = Ep/p*, where p is domestic price level and p* is foreign price level]
NX = X - IM/e
IM/e as imports have to be valued in terms of domestic good.
If we depreciate the currency, assuming constant price levels, that implies depreciation of e, then X increases and IM decreases but the value of import increases. What Marshal-Lerner condition specifies is the increase in NX with real depreciation, i.e.,
dNX/de < 0.
Also, empirically it is found that Marshall-Lerner condition is satisfied most of the times.
I hope this answers your question.