Five Major Problems in Equilibrium Exchange Rate - 张焕波的日志 - 网易博客.doc

Five Major Problems in Equilibrium Exchange Rate - 张焕波的日志 - 网易博客Five Major Problems in Equilibrium Exchange Rate - 张焕波的日志 - 网易博客网易 新闻 微博 邮箱 闪电邮 相册 有道 手机邮 印像派 梦幻人生 更多 博客 博客首页 博客话题 热点专题 博客油菜地 找朋友 博客圈子 博客风格 手机博客 短信写博 邮件写博 博客复制 摄影 摄影展区 每日专题 人物志 专访 交作业 搜博文 搜博客随便看看 关注此博客 选风格不再艰难搬家送Lomo卡片注册 登录 显示下一条 | 关闭 张焕波的博客张焕波的个人博客 导航 首页 日志 相册 音乐 收藏 博友 关于我 日志 张焕波 中国国际经济交流中心研究员。,研究方向：低碳经济,宏观经济。 ,文章只代表张焕波本人观点,不代表任何机构 加博友 关注他 最新日志 房地产市场调控思路与对策经济发展质量较高和转变经济有效提高工资收入，促进经济Five Major Problems in Equ彼得森研究所均衡汇率模型存中国低碳企业之路-新的经济博主推荐相关日志随机阅读 中国高端DIY市场缺的是脑白金和偶像见面卢延光的小人书密室之不可告人：爱比恨可怕男子目睹胎兄躺在自家媳妇身上酿命案狗屁律师“最可爱的人”今安在首页推荐 兽兽亮相车展遭围攻为何有些物种要变性洗澡时发现婆婆是双性恋美国人忙着捡便宜 毛利:烂人完美标本 游资为什么炒作农产品？更多 彼得森研究所均衡汇率模型存在五大问题 有效提高工资收入，促进经济内外平衡Five Major Problems in Equilibrium Exchange Rate默认分类 2010-04-30 11:53:49 阅读36 评论0 字号：大中小 订阅 Zhang Huanbo Zhang YongjunAbstract The Peterson Institute for International Economics concluded that RMB is undervalued by 41% based on the SMIM model. This conclusion has made great influence in the world, leading to huge pressure on RMB appreciation in the current Sino-US exchange rate debate. However, there are five major problems in the SMIM model: firstly, current account equilibrium is regarded as the sole exchange rate target; secondly, supports for setting various countries current account balance targets are insufficient; thirdly, the export price elasticity only considers exchange rate, failing to take account of factors such as domestic product cost, product competitiveness etc.; fourthly, there is an unreasonable assumption that variation of exchange rate only affects export volume without any influence on import volume; fifthly, the sampling of export price elasticity is stylized and simple, which is only relevant to the export ratio. Therefore, conclusions based on this model are unjustified.1. Overview of the Equilibrium Exchange Rate Model (1) The report by the Peterson Institute for International Economics has caused significantly negative impact. In recent years, the Peterson Institute for International Economics has calculated the equilibrium exchange rates of major countries by adopting the SMIM model, and releasing relevant research reports. A recent report indicates that, the RMB exchange rate against the US dollar is undervalued by 41% based on this model. This result has been widely recognized in the U.S., and has become an important support for U.S. senators to push RMB appreciation. Paul Krugman, the Nobel Laureate in Economics also expressed his support for this conclusion. This caused negative impact around the world, leading to great pressure on RMB appreciation. (2) Introduction of SMIM Model of the Peterson Institute for International Economics. The basic formula of this SMIM model is as follows: variation of current-account balance (% GDP）= variation of effective exchange rate (%） export price elasticity. The only goal of the SMIM model is to realize that the current account balances of various countries fluctuate between -3% and +3% of GDP through adjusting effective exchange rates of various countries. In this model, there is only one policy instrument: effective exchange rate; and there is also only one policy target: making various countries current account balances fluctuate between the range of -3% and +3% of GDP. Of course, in order to realize the global balance, some countries are allowed to slightly exceed this range. Export price elasticity is a constant, which is determined according to the proportion of export in a countrys GDP.2 Five Major Problems in the Equilibrium Exchange Rate ModelThere are many debatable problems in this model; it will be hasty if such results are adopted for policy making. Once the conclusions based on this model are used as pretexts for political propaganda, the impact will be even worse.Problem 1: current account equilibrium is regarded as the sole exchange rate target. Firstly, regarding current account equilibrium as the goal of equilibrium is contrary to the economic equilibrium theory and world economic development trend. Economic equilibrium includes external equilibrium and internal equilibrium. External equilibrium refers to the net balance of payments of a country, that is, the difference between net export and net capital outflow is zero. Internal equilibrium is the equilibrium among three major macro-economic objectives: economic growth, full employment and price stability. Like inflation, external equilibrium is an intermediate variable, which is not important for its own part. In the SMIM model, it is biased to only take account of the current account equilibrium in external equilibrium without considering other equilibriums. There are differences among countries in terms of resource, talent, technology, culture and capital etc. Those countries with comparative advantages in certain respects can certainly obtain current account surplus through these advantages, such as the petroleum in the Middle East and Russia, sophisticated manufacturing technologies of Japan and Germany, and Chinas large-scale production capacity. Ignoring such inherent differences among countries but only pursuing the trade equilibrium of various countries undoubtedly go against the trend of globalization. The U.S. has realized external equilibrium through its capital advantage. Secondly, there are many factors affecting the current account, while the exchange rate is only one of them. Pinning the hope of adjusting the current account totally on the exchange rate is not practical according to various countries development experiences. Theoretically, the net current account is the difference between savings and investment of a country. This actually reflects that, under the system of international industrial division of labor, a countrys endogenous economic structure directly determines its trade balance. For instance, even though the RMB appreciates, given that most industrial products of the world are still produced in large quantities in China, it will be difficult for ordinary people to increase their demands for U.S. products. In addition, even when Chinas industries have to shift and relocate due to factors such as cost etc., rather than being shifted to the U.S. substantially, industries will be shifted to other developing countries and regions. RMB appreciation will not increase jobs in the U.S., because U.S.s re-industrialization is absolutely not a low-level one. Therefore, pinning the hope of improving the current account purely on the exchange rate is unfeasible. Thirdly, as a policy instrument, exchange rate affects a variety of macroeconomic indicators. When adjusting the exchange rate, we shall not take the current account as the sole orientation. The impacts of exchange rate adjustment on domestic industries and domestic prices should also be considered. Therefore, the adjustment of exchange rate is subject to multiple constraints. We should not disregard other factors but only pursue balancing the current accounts. Problem 2: Supports for setting various countries current account balance targets are insufficient. The setting of current account balance targets by SMIM is random and characterized by insufficient supports. In the balance world set by SMIM, in addition to the Middle East oil producing countries, for those countries with current account balance accounted for more than 3% of GDP, their current account balances are all contracted to 3%; while for countries with current account balance accounted for less than 3% of GDP, their balances are contracted to zero.But the contraction degree is set randomly, which therefore will lead to biased assumptions regarding certain countries. At the same time, there is no verification test for the stability of this random setting. If the stable solution is not contracted, a single variables slight fluctuation will cause substantial deviation from the equilibrium solution. Thus the credibility of the equilibrium solution can not be guaranteed. Experiences show us that there has not been any such contraction balance in the history.Problem 3：The export price elasticity only considers exchange rate, failing to take account of factors such as domestic product cost, product competitiveness etc. Variation of exchange rate is equal to variation of export price in the SMIM model, which means that if the exchange rate changes by 1%, the export price changes by 1% as well. This assumption is unrealistic, particularly for Chinese products. Recent research results show that, if the RMB appreciates by 1%, variation of corresponding export price is almost zero, while most of the cost burden brought by RMB appreciation is actually absorbed domestically. Capacity to shift the exchange rate cost burden varies among different types of products. There are many factors affecting the export price, including cost, competitiveness and product demand elasticity etc. Problem 4：There is an unreasonable assumption that variation of exchange rate only affects export volume without any influence on import volume. The SMIM assumes that variation of exchange rate only affects export volume but does not affect import volume. Model designer explains that variation of exchange rate leads to variation of import price which then will influence the volume of demand. As price increases, demand decreases; and vice versa. But in each case, the total import volume will be kept unchanged. This assumption is somewhat absurd, because import of a country is equivalent to export of other countries. Since variation of exchange rate will not affect import, export will not be affected either. Problem 5: The sampling of export price elasticity is stylized and simple, which is only relevant to the export ratio. The SMIM model assumes that, if a countrys export accounts for 10% of its GDP, its export price elasticity will be 1; if a countrys export accounts for 100% of its GDP, its export price elasticity will be 0.5. Thus, according to the proportion of a countrys export in its GDP, a countrys export price elasticity can be determined. In fact, as mentioned above, a countrys export price elasticity is affected by many factors, which is not only relevant to the proportion of its export in its GDP. There are great differences in terms of export price elasticity among different countries and different products. To build up an empirical model, relevant products export price elasticities should be estimated through econometric models according to actual data. However in the SMIM, the export price elasticity does not take account of these factors to conduct measurement and calculation regarding each countrys export price, only assuming that a countrys export price elasticity is relevant to the proportion of its export in its GDP. Therefore, the sampling of export price elasticity is stylized and simple, which absolutely will lead to great deviation from the reality. 3. Exchange rate should comprehensively reflect a countrys development levelExchange rate level is a mirror of a countrys development stage, development level and competitiveness. A countrys exchange rate evolution is closely related to factors such as that countrys economic strength, scientific and technological level, and adjustment of industrial structure etc. A countrys market exchange rate level is closely related to its economic development stage. With a countrys economy proceeding from underdeveloped to developed, its market exchange rate level will be changed from being far away from the PPP to gradually approaching the PPP, which is a natural law of exchange rate evolution for countries in the world. Currently Chinas market exchange rate level, namely the degree of devia