Notes on the Premia for Foreign Exchange and Nontradables Outlays

Abstract

This paper modifies the “standard” methodology for calculating the economic opportunity cost of foreign exchange (EOCFX), so as to incorporate into its calculation the distortions involved in the act of “sourcing” in the capital market the funds that will be spent by the project. Once we take these “sourcing” distortions into account, we are logically forced to pursue two parallel calculations. The first, EOCFX traces the results of sourcing money in the capital market and spending it on tradables. The second, the shadow price of nontradables outlays (SPNTO) traces the results of sourcing money in the capital market and spending it on nontradables. Supporting arguments and illustrative calculations are presented in the paper.

Citation

Harberger, A.C. (2007), "Notes on the Premia for Foreign Exchange and Nontradables Outlays", Zerbe, R.O. (Ed.) Research in Law and Economics (Research in Law and Economics, Vol. 23), Emerald Group Publishing Limited, Leeds, pp. 203-221. https://doi.org/10.1016/S0193-5895(07)23009-X