Price and terms of Trade Responses to Revaluation in West-Germany
(1978) , 24 pages
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- Abstract
- in this paper German industries are classified into a competitive and a non-competitive sector. The effects of revaluation of the deutschmark and of changes in world market prices are computed With a pricing model inspired by the Scandinavian approach. It is then shown that in the short-run the terms of trade and profit shares in the competitive sector are strongly affected by revaluation. The effects are weaker when wages are adjusted for changes in prices, but still important. Hence, a revaluatlon does produce real effects in West Germany, although it is not clear whether the trade account surplus is increased or decreased. An exogenous deterioration of the terms of trade is accentuated by the existence of a non-competitive sector. Profits in the competitive sector increase attracting resources from sheltered sectors, independent of whether terms-of-trade increase or decrease as long as prices in the competitive sector rise. In general, the trade account response is again ambiguous.
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Citations
Steinherr, A., & Morel, C. (1978). Price and terms of Trade Responses to Revaluation in West-Germany (Working Papers Institut des sciences économiques 7804). https://hdl.handle.net/2078.5/278740