国际金融学英文课件：ch08 Balance-of-Payments and Exchange-Rate Determination

1、Balance-of-Payments and Exchange-Rate DeterminationElasticities Approach and Absorption ApproachINTERNATIONAL MONETARY AND FINANCIAL ECONOMICSThird EditionJoseph P. DanielsDavid D. VanHooseCopyright South-Western, a division of Thomson Learning. All rights reserved.Section 1: Common Characteristics

2、of the Traditional ApproachesEarly 1920s through the 1960s;The world economy was quite different from that of today;Major economies had adjustable-peg exchange-rate arrangements under both the gold standard (mid-1870s 1930s) and the Bretton Woods system (1944 1971). Both approaches focused on unders

3、tanding the effect of a devaluation on a nations balance of payments. We can use these approaches to examine the effects of a currency depreciation as well.2Capital flows did not dominate the foreign exchange market as they do today. Both approaches assume that capital flows exist solely to finance

4、international transactions of goods and services. Capital flows are not explicitly considered in the models.Recall Chapter 1: 34Chapter 1 Section 3: Capital account and international flow of assets A starting point for thinking about capital account transactions is to view these transactions as nece

5、ssary to finance current account transactions.金融学第3章第二节 汇率的决定理论一、早期汇率决定理论一、早期汇率决定理论 （一）国际借贷理论（一）国际借贷理论实体经济层面实体经济层面 （二）购买力平价理论（二）购买力平价理论货币层面货币层面 （三）汇兑心理学说（三）汇兑心理学说 （四）利率平价理论（四）利率平价理论货币层面货币层面 Section 2: Exports, Imports, and The Demand for and Supply of Foreign ExchangeI Overview of the Elasticity App

6、roachThe elasticity approach emphasizes price changes as a determinant of a nations balance of payments and exchange rate.6Traditional approaches to balance-of-payments and exchange-rate determination assume that capital flows occur only to finance real-sector transactions.Hence, the quantity of for

7、eign exchange demanded and the quantity of foreign exchange supplied depend only on international transactions of goods and services.7II The Demand for and Supply of Foreign ExchangeThe demand for (Df) and supply of foreign exchange (Sf) depends respectively on imports and exports.8U.S Import Demand

8、 for European Champagne and Its Demand for the Euro9This panel illustrates an import demand curve for the United States as combinations of the quantities of champagne demanded at various prices. At a specific price, there is a specific quantity of imports demanded. 1011This panel illustrates the cor

9、responding demand for foreign exchange as combinations of the quantities of foreign exchange demanded at various exchange rates. To import the specific quantity of champagne, at a specific exchange rate, there is a specific amount of euro needed.12Elasticity and the Demand for Foreign ExchangePrice

10、Elasticity of Demand is a measure of the responsiveness of quantity demanded to a change in price.If quantity demanded is highly responsive to a change in price, then demand is said to be relatively elastic. If quantity demanded is not very responsive to a change in price, then demand is said to be

11、relatively inelastic.13Elasticity of Import Demand and the Elasticity of Foreign Exchange Demand14The import demand curve denoted DC is more elastic than the demand curve DC. 15The foreign exchange demand curve denoted D is more elastic than the foreign exchange demand curve D.The United States Expo

12、rt Supply Curve and the Supply of the Euro16This panel illustrates an export supply curve for the United States as combinations of the quantities of music CDs supplied at various prices. At a specific price, there is a specific quantity of exports of music CDS. 17This panel shows the corresponding s

13、upply of foreign exchange as combinations of the quantities of foreign exchange supplied at various exchange rates. By exporting the specific quantity of music CDs, at a specific exchange rate, there is a specific amount of euro supplied.Elasticity of Export Supply and the Elasticity of Foreign Exch

14、ange Supply18In the left-hand panel, the export supply curve SCD is more elastic than the supply curve SCD. In the right-hand panel, the foreign exchange supply curve S is more elastic than the foreign exchange supply curve S.19Section 2: The Elasticity ApproachAn approach which emphasizes changes i

15、n the prices of goods and services as the main determinant of a nations balance of payments and the exchange value of its currency. 20I The Exchange Rate and the Balance of PaymentsEffects of Exchange Rate ChangesWhen a nations currency depreciates, domestic goods become relatively cheaper and forei

16、gn goods relatively more expensive in the global market.Hence, we would expect the nations exports to rise and imports to decline.21Likewise, an excess quantity demanded of the domestic currency (excess Ddc) is equivalent to a current account surplus.It follows that an excess quantity supplied of th

17、e domestic currency (excess Sdc) is equivalent to a current account deficit.The current account is in balance when the quantity of the domestic currency supplied and the quantity demanded are equal.22The Role of Elasticity: the responsiveness of imports and exportsThe elasticity approach, therefore,

18、 considers the responsiveness of the quantity of imports and the quantity of exports to a change in the value of a nations currency.For example, if import demand is highly elastic, a depreciation of the domestic currency will cause a relatively larger decline in the nations imports.2324The current a

19、ccount deficit is equivalent to the difference between the quantity of foreign exchange demanded and the quantity of foreign exchange supplied. At the spot exchange rate of 1.00, U.S. residents demand 220 million in foreign exchange and European residents supply 180 million. Hence, the current accou

20、nt deficit is 40 million.25The amount of depreciation required to eliminate this deficit depends on elasticity of Df and Sf.When demand and supply are relatively more elastic, a smaller deprecation is required to eliminate the current account deficit.2627The Marshall-Lerner Condition Will a deprecia

21、tion always improve the current account balance? The Marshall-Lerner condition specifies the necessary conditions for the current account to improve. According to this condition, the current account balance will improve if the sum of the absolute values of the elasticity of import demand and the ela

22、sticity of export supply exceed unity. 进口需求弹性绝对值+出口供给弹性绝对值大于1。II Short- and Long-Run Elasticity Measures and the J-CurveMany factors determine the elasticity of export supply and import demand.Time horizon is one factor that determines the elasticity of export supply and import demand.Short-Run Vers

23、us Long-Run Time Horizon28Households and businesses need a longer time interval to adjust to price changes. For instance, in the short run, they be obligated by contract to complete a purchase of an imported good. Thus, export supply and import demand tend to be relatively more price elastic over lo

24、nger time periods and less elastic over shorter time periods. 29The J-Curve EffectThe current account balance may respond differently to a currency change in the short run relative to the long run.Export supply and import demand are less elastic over shorter time periods, thus a depreciation of the

25、domestic currency is unlikely to immediately improve a nations balance-of-payments deficit.The J-Curve effect refers to a phenomenon in which a depreciation of the domestic currency causes a nations balance of payment to worsen before it improves.3031Initially there is a current account deficit of $

26、40 million. At time t1, the dollar depreciates. In the short run, import demand and export supply may be inelastic and the current account widens to $48 million. Eventually, as businesses and households have time to adjust their planned expenditures on imports and exports, the deficit improves.III P

27、ass-Through EffectsPass-through effects are also important to understanding the response of the current account to changes in the exchange rate.The reduced import demand may result from the increase in the domestic currency price of imported goods.A pass-through effect is when the domestic price of

28、an imported good rises following the depreciation of the domestic currency.32It is important to understand how much of a domestic currency value change is passed through to domestic prices because of the implications for a nations balance of payments.If the currency depreciation does not passed thro

29、ugh to domestic prices of imported goods, thus import demand will not reduce, and the currency depreciation may not improve current account deficit. 33Similarly, if a currency appreciation does not reduce the price of imported goods, thus import demand will not increase, and the appreciation may not

30、 reduce a current account surplus.34Section 3: The Absorption ApproachThe absorption approach assumes that prices remain constant and emphasizes changes in real domestic income as a determinant of a nations balance of payments and exchange rate.A real-income theory of , and a short-run approach to b

31、alance-of-payment and exchange rate determinationAccording to the approach, if a nations real income exceeds the amount of goods and services that it absorbs, then the nation will run a current account surplus.35I Modeling the Absorption ApproachThe approach separates the market values of a nations

32、expenditures on final goods and services into four categories, consumption (c), investment (i), government (g), and imports (m).AbsorptionEconomists refer to the total of these four categories of expenditures as domestic absorption(a).a c + i + g + m,36Real IncomeA nations real income (y) is equival

33、ent to total expenditures on its outputy c + i + g + x,where x denotes exports.37 Current AccountDuring the time (early Bretton Woods era) that the absorption model was developed, capital flows were not very important. Trade flows, therefore, determined the current account balance. Hence, the curren

34、t account (ca) is equivalent toca x - m.Then, for example, if exports exceed imports, x m, then the nation is running a current account surplus.38II Determination of Current Account BalanceThe absorption approach hypothesizes that a nations current account balance is determined by the difference bet

35、ween real income and absorption, which can be written as: y - a = (c+i+g+x) - (c+i+g+m) = x - m,ory - a = ca.39III Economic Expansion and ContractionThough a simple theory, the absorption approach is helpful in understanding the performance of a nations current account balance and its currencys valu

36、e during economic expansion and contraction.For example, when a nation experiences an economic contraction, does its current account necessarily improve and does its currency definitely appreciate? Does the opposite necessarily hold during an economic expansion?40In a Case of Economic ExpansionConsi

37、der a nation whose current account initially is balanced. Suppose that the nation experiences an economic expansion. As real income rises, so do real expenditures or absorption. y - a = caThus, whether the current account balance improves or worsens depends on the relative changes in these two varia

38、bles.41If real income rises faster than absorption, then the nation will experience a current account surplusy a ca 0.If real income rises slower than absorption, then the nation will experience a current account deficity a ca 0.42The absorption approach can also be used to examine how changes in in

39、come affect the value of a nations currency.Recall that y - a = x - m.For example, if real income is rising faster than absorption, then exports must be increasing relative to imports. Hence, the nations currency will appreciate.43IV Policy InstrumentsIn the absorption approach, and under adjustable

40、-pegged exchange rates, a nation may resort to absorption instruments or expenditure-switching instruments to correct an external imbalance.Absorption Instrument: a governments ability to increase or decrease a nations absorption by changing its own purchases of domestic output or by influencing consumption and investment expenditures.44