The Marshall-Lerner Condition: Stability of an Equilibrium or a System?
This article examines the Marshall-Lerner (ML) condition from a broader perspective. Mundell (1968) regarded ML as the stability condition of the equilibrium, but not of the system. The violation of the ML condition by Japan's estimates is interpreted as a possible symptom of a negative exchang...
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| Language: | English |
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Elsevier
2024-07-01
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| Series: | Asia and the Global Economy |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S266711152400015X |
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| author | Hiroya Akiba |
| author_facet | Hiroya Akiba |
| author_sort | Hiroya Akiba |
| collection | DOAJ |
| description | This article examines the Marshall-Lerner (ML) condition from a broader perspective. Mundell (1968) regarded ML as the stability condition of the equilibrium, but not of the system. The violation of the ML condition by Japan's estimates is interpreted as a possible symptom of a negative exchange rate depreciation spiral in Thorbecke (2022). By constructing an open-economy macroeconomic model with three endogenous variables in three markets, and solving the model for the exchange rate, we examined the model's stability. Stability depends not only on the ML condition, but also on the configuration of the model's parameters. This implies that the ML condition alone is not responsible for the stability/instability of the model. Using the ML parameter estimated by Thorbecke (2022) and previously obtained money market parameters for the Japanese economy, we found that a simple model satisfies the necessary and sufficient conditions for stability. However, for an extended model, some cases fail to satisfy stability conditions. We further investigate the possible cause of this failure, and suggest that the Bank of Japan's (BOJ) unconventional monetary policies implemented after the economic bubble burst may be responsible. |
| format | Article |
| id | doaj-art-d33de8662f494e40b482befc3d7e238c |
| institution | OA Journals |
| issn | 2667-1115 |
| language | English |
| publishDate | 2024-07-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Asia and the Global Economy |
| spelling | doaj-art-d33de8662f494e40b482befc3d7e238c2025-08-20T02:35:51ZengElsevierAsia and the Global Economy2667-11152024-07-014210009110.1016/j.aglobe.2024.100091The Marshall-Lerner Condition: Stability of an Equilibrium or a System?Hiroya Akiba0Address correspondence to: Hiroya Akiba, Ph.D., 981-3 Higashi Naganuma, Inagi-city, Tokyo 206-0802, Phone/FAX: +81-42-378-9146.; Professor Emeritus, Waseda University, Tokyo, JapanThis article examines the Marshall-Lerner (ML) condition from a broader perspective. Mundell (1968) regarded ML as the stability condition of the equilibrium, but not of the system. The violation of the ML condition by Japan's estimates is interpreted as a possible symptom of a negative exchange rate depreciation spiral in Thorbecke (2022). By constructing an open-economy macroeconomic model with three endogenous variables in three markets, and solving the model for the exchange rate, we examined the model's stability. Stability depends not only on the ML condition, but also on the configuration of the model's parameters. This implies that the ML condition alone is not responsible for the stability/instability of the model. Using the ML parameter estimated by Thorbecke (2022) and previously obtained money market parameters for the Japanese economy, we found that a simple model satisfies the necessary and sufficient conditions for stability. However, for an extended model, some cases fail to satisfy stability conditions. We further investigate the possible cause of this failure, and suggest that the Bank of Japan's (BOJ) unconventional monetary policies implemented after the economic bubble burst may be responsible.http://www.sciencedirect.com/science/article/pii/S266711152400015XF14F31F32G10E51E52 |
| spellingShingle | Hiroya Akiba The Marshall-Lerner Condition: Stability of an Equilibrium or a System? Asia and the Global Economy F14 F31 F32 G10 E51 E52 |
| title | The Marshall-Lerner Condition: Stability of an Equilibrium or a System? |
| title_full | The Marshall-Lerner Condition: Stability of an Equilibrium or a System? |
| title_fullStr | The Marshall-Lerner Condition: Stability of an Equilibrium or a System? |
| title_full_unstemmed | The Marshall-Lerner Condition: Stability of an Equilibrium or a System? |
| title_short | The Marshall-Lerner Condition: Stability of an Equilibrium or a System? |
| title_sort | marshall lerner condition stability of an equilibrium or a system |
| topic | F14 F31 F32 G10 E51 E52 |
| url | http://www.sciencedirect.com/science/article/pii/S266711152400015X |
| work_keys_str_mv | AT hiroyaakiba themarshalllernerconditionstabilityofanequilibriumorasystem AT hiroyaakiba marshalllernerconditionstabilityofanequilibriumorasystem |