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What is the Marshall- Lerner Condition and how is it used?

发布时间：2025-08-24 02:21:42

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答案：Marshall-Lerner condition is used to figure out if a foreign exchange market is stable or unstable. Stability of the foreign exchange market is essential for pursuing a flexible foreign exchange regime. The condition is defined in terms of price elasticity of us demand for imports (nM) and the price elasticity of foreign demand for Us exports (nX).If the following condition is met then the market is considered to be stable. meaning that if the exchange rate moves away from the equilibrium value for some reason, market forces will bring it back to equilibrium. When the symbols represent the absolute values of the elasticities, the Marshall-Lerner condition is met through the satisfaction of the following equation. nM+nX>1. lf this condition is not met, then the foreign exchange market is unstable and any deviation from the equilibrium will not tend to be automatically corrected by the market forces and it will be difficult to pursue a flexible foreign exchange system under those conditions.