Monetary Economics (ECS3701) Selected Examination Questions and suggested solutions[Distinction Level]2023

According to the elasticity approach a domestic currency depreciation does what to the CA - -TYPICALLY, it narrows the CA, unless the marshall-lerner condition is met -What is the martial lerner condition and how is it satisfied? - -The marshall lerner condition suggests that a domestic currency depreciation can, sometimes, particularly in the short-run, when elasticities are high enough, lead to a widening of the CA. This is satisfied when sum of the absolute values of import demand and export supply elasticities exceed 1 -Why might we see the J-curve effect? - -pricing contracts, inability to switch to substitutes in the short-run (gasoline) -Define: FX pass-through - -the degree to which a currency depreciation results in higher domestic prices of imported goods and services in the long-run -Absorption approach equation - -y-a=CA -If Y increases faster than A, the domestic currency will... - -appreciate -If A increases faster than Y, the domestic currency will... - -depreciate