marshall lerner's condition doubt

[Sris]

guys plz tell me what exactly is marshall lerner's cndn ....is it dNX/de>0 or <0

after going through wiki and dse papers...this is what i have concluded

1) if e= EP^*/P ie e= so many domestic currency /foreign currency....then dNX/de>0

 2)if e= EP/P^* ie   e = so many foreign currency/domestic currency then dNX/de<0

plz clear my doubts....

[dhruv]

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.

[bhavna khari]

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.

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[dhruv]

I studied from Blanchard.

[bhavna khari]

Yes i found it . Its chapter 19

On Jun 18, 2015 10:30 AM, "dhruv [via Discussion forum]" <[hidden email]> wrote:

I studied from Blanchard.

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