Exchange rate pass-through, the terms of trade and the trade balance
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Murphy, E. & Lapadre, L. (1999) "Exchange rate pass-through, the terms of trade and the trade balance" (Working Paper No. 0034) Department of Economics, National University of Ireland, Galway.
We show that if exchange rate pass-through is incomplete, a country's terms of trade may move in the same or contrary direction to the nominal value of its currency. Moreover, when the degree of pass-through is endogenous, the trade balance must improve it the currency devalues.