P. New MARSHALL–LERNER Condition and Economic Globalization

Abstract

High current account deficits have been a major challenge for US policy makers since the 1990s; many other countries have also occasionally faced problems with the current account deficit. Such deficits often give rise to protectionism, and it is therefore quite important to understand which policy options exist for correcting a trade balance deficit or a current account deficit. With respect to the USA, OBSTFELD/ROGOFF (2005) have raised the problem that even a considerable adjustment of the real exchange rate might be insufficient to cope with the high current account deficit. Instead, the internal relative price—the ratio of tradables to nontradables prices—would also have to adjust in a way which stimulates net exports of goods and services.