The true shadow price of foreign exchange |
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| Authors: | Richard Dusansky David Franck Nadeem Naqvi |
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| Affiliation: | (1) University of Texas at Austin, Austin, USA;(2) College of Business and Public Affairs, University of Tennessee at Martin, Business Administration Building, 38238-5015 Martin, TN;(3) Western Carolina University, USA |
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| Abstract: | For the last half century, trade theorists, development economists, and development practitioners have been calculating what was claimed to be the shadow price of scarce foreign exchange. In fact, what they have been calculating is the social value of the receipt of a unit of a numeraire good from abroad, typically obtained from real models. In our paper, we explicitly deal with a model of a monetized economy, and we develop formulas for the social value of a unit of foreign currency, which, in general, differ from the traditional formulas. |
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