I understand fully the J-curve effect, and I am aware that devaluing the currency will worsen the current account position in the short run and then the current account is likely to improve in the long run...
But... If the combined ped's are less than one, does this mean that the devaluation is likely to be unsuccessful even in the long run and therefore the government should consider a revaluation.
Or... does the Marshall-Lerner condition help support the case that the current account will worsen in the short run, but improve in the long run because the demand for exports and imports are likely to be more elastic in the long run?
Devaluation and Marshall-Lerner. Need help! Watch
- Thread Starter
- 11-04-2013 18:50
- 12-04-2013 12:29
The Marshall-Lerner condition states that in order for a sharp depreciation or devaluation to improve a trade deficit, the combined ped of imports and exports must be greater than 1. If it is less than one then the trade deficit will worsen. So basically the government should try to do something else to improve a trade deficit