Marshall learner condition

The Marshall-Lerner condition is one of Abba P. Lerner and Alfred Marshall developed economic theoretical concept of the operation of exchange rate -Change to the balance of the current account with supply and demand - elasticities explained. If the Marshall-Lerner condition is met, the current account improves after a devaluation of the own currency beyond its starting balance (i.e. positive). This effect is referred to as the normal reaction of the power balance. The approach used here is also referred to as the elasticity approach .

Concepts related to the Marshall-Lerner condition

If, after a devaluation, there is initially a deterioration in the current account (negation) and there is only a delay in its improvement, this is referred to as a J-curve effect. In this process, the price and volume effects of the devaluation must be distinguished. In the J-curve effect, the volume effect occurs later for various reasons (e.g. information gap, long-term contracts).

In 1937, Joan Robinson published the more general condition: the Robinson condition . It affects the same issue as the Marshall-Lerner condition, but works with fewer assumptions.

Theoretical derivation

When applying the Marshall-Lerner condition, the following prerequisites must be met: The external contribution must be zero in the initial situation and the supply elasticities in both markets must approach infinity. If the sum of the demand elasticities added to the amount is greater than one under these conditions, a devaluation of the domestic currency leads to an increase in the external balance (= normal reaction of the current account).

The starting point of the Marshall-Lerner condition is the Robinson condition: ${\ displaystyle {\ frac {\ eta _ {Ex} (1+ \ varepsilon _ {Ex})} {\ varepsilon _ {Ex} + \ eta _ {Ex}}}> {\ frac {\ varepsilon _ {Im } (1- \ eta _ {Im})} {\ varepsilon _ {Im} + \ eta _ {Im}}}}$

Here are and demand elasticities for export and import as well and the supply elasticities for export or import. ${\ displaystyle \ eta _ {Ex}}$ ${\ displaystyle \ eta _ {Im}}$ ${\ displaystyle \ varepsilon _ {Ex}}$ ${\ displaystyle \ varepsilon _ {Im}}$

If the left term is expanded by and the right term by , the result is: ${\ displaystyle {\ frac {1} {\ varepsilon _ {Ex}}}}$ ${\ displaystyle {\ frac {1} {\ varepsilon _ {Im}}}}$ ${\ displaystyle {\ frac {\ eta _ {Ex} + {\ frac {\ eta _ {Ex}} {\ varepsilon _ {Ex}}}} {1 + {\ frac {\ eta _ {Ex}} { \ varepsilon _ {Ex}}}}}> {\ frac {1- \ eta _ {Im}} {1 + {\ frac {\ eta _ {Im}} {\ varepsilon _ {Im}}}}}}$

Under the assumptions of an infinite export supply elasticity and an infinite import supply elasticity, we get: or ${\ displaystyle \ varepsilon _ {Ex} \ to \ infty}$ ${\ displaystyle \ varepsilon _ {Im} \ to \ infty}$ ${\ displaystyle \ eta _ {Ex}> 1- \ eta _ {Im}}$ ${\ displaystyle \ eta _ {Ex} + \ eta _ {Im}> 1}$

interpretation

If the demand elasticity is sufficiently large, there is a normal reaction, i.e. a devaluation then leads to an improvement in the current account. Domestic goods have become cheaper for foreigners and are therefore in greater demand; there is an upturn in exports with a simultaneous decrease in imports (foreign goods have become more expensive for residents).

An appreciation leads to a deterioration in the current account. There is a decrease in the surplus or an increase in the deficit, since domestic goods have become more expensive for foreigners and foreign goods are cheaper for residents.

In order for the two conditions with regard to supply elasticities to be met, the examined country must in principle be a large economy ; because only if it is big enough can it react completely flexibly on the export goods market and thus provide additional export goods without price increases (mathematically indicated by ). ${\ displaystyle \ varepsilon _ {Ex} \ to \ infty}$

On the other hand, the country's economic power must be small enough not to be able to influence the world market price itself - otherwise the assumption of a completely price-elastic import supply ( ) would not be correct. ${\ displaystyle \ varepsilon _ {Im} \ to \ infty}$

literature

Manfred Borchert: The Marshall Lerner condition . In: Wirtschaftswwissenschaftliches Studium (WiSt), 4th year, issue 8 (August 1975), pp. 391–393.

Individual evidence

↑ s. Robinson, Joan (1937), Essays in the Theory of Employment, p. 194, Macmillan: London

[1] s. Robinson, Joan (1937), Essays in the Theory of Employment, p. 194, Macmillan: London