previous authors. The fail in the long-run capital stock causes an immediate reduction in the rate of investment, which in turn …

the substitution effect dominates, a deterioration in the terms of trade leads to a short-run reduction in investment and … dominates, the deterioration m the terms of trade leads to a short-run investment boom, accompanied by a short-term current … account deficit. The Laursen-Metzler effect prevails, although it is driven by investment, rather than by savings behavior …