國際金融學(xué)課件：Chapter 5 Exchange-Rate Adjustments and the balance of payments

1、EXCHANGE RATE ADJUSTMENTSAND THE BALANCE OF PAYMENTYS CHAPTER 5 Main contentEffects of exchange-rate changes on costs and prices Cost-cutting strategies of manufacturers in response to currency appreciationThe elasticity approach and J-curve effectExchange rate pass throughThe absorption approach Th

2、e monetary approach Effects of Exchange-Rate Changes on Costs and PricesHow do exchange-rate fluctuations affect relative costs?Extent to which a firms costs are denominated in terms of the home currency or foreign currencyNo foreign sourcing - all costs are denominated in dollarsIf the dollar appre

3、ciates by 100%, the U.S. firm:Increase in other currency denominated production costs by 100% - Reduced international competitiveness34Effects of a dollar appreciation on a U.S. steel firms production costs when all costs are dollar-denominatedTABLE 5.1Effects of Exchange-Rate Changes on Costs and P

4、ricesForeign sourcingsome costs denominated in dollars and some costs denominated in francsIf the dollar appreciates by 100%, the U.S. firm:Production costs in francs increase by 100% for the inputs denominated in dollarsProduction costs in francs stay the same for the inputs denominated in francs O

5、verall, higher production costs (by less than 100%)Reduced international competitiveness56Effects of a dollar appreciation on a U.S. steel firms production costs when some costs are dollar-denominated and other costs are franc-denominatedTABLE 5.2Effects of Exchange-Rate Changes on Costs and PricesG

6、eneralization As franc-denominated costs become a larger portion of Nucors total costsA dollar appreciation (depreciation) leads toA smaller increase (decrease) in the franc cost of Nucor steel A larger decrease (increase) in the dollar cost of Nucor steel compared to the cost changes that occur whe

7、n all input costs are dollar-denominated7Effects of Exchange-Rate Changes on Costs and PricesChanges in relative costs Because of exchange-rate fluctuations Influence relative prices; Influence the volume of goods traded among nations8Effects of Exchange-Rate Changes on Costs and PricesDollar apprec

8、iationIncreasing relative U.S. production costsRaise U.S. export prices in foreign-currency termsDecrease in the quantity of U.S. goods sold abroadIncrease in U.S. imports9Effects of Exchange-Rate Changes on Costs and PricesDollar depreciationDecreasing relative U.S. production costsLower U.S. expor

9、t prices in foreign-currency termsIncrease in the quantity of U.S. goods sold abroadDecrease in U.S. imports10Effects of Exchange-Rate Changes on Costs and PricesFactors influencing the extent by which exchange-rate movements lead to relative price changes among nationsdomestic exporters reduce prof

10、it margins to maintain competitivenessPerceptions concerning long-term trends in exchange rates - promote price rigidityProduct substitutabilityMove production offshore11Japanese firms outsource production to limit effects of strong YenStrong yen in recent yearsJapanese exporters - smaller profits w

11、hen converting dollar profits back into yenProtect profits: move production to the U.S.Lessening the amount of money they convert from dollars to yen Contributes to the excess capacity of manufacturing plants in JapanResults in job losses for Japanese workers12Cost-Cutting Strategies of Manufacturer

12、s in Response to Currency AppreciationYen appreciation: Japanese manufacturers1990 - 1996, Japanese yen relative to U.S. dollar increased by 40%Japanese firmsEstablish integrated manufacturing bases in the U.S. and in dollar-linked AsiaUse cheaper dollar-denominated parts and materials, Purchase che

13、aper components from around the world Shifted production from commodity-type goods to high-value products13Cost-Cutting Strategies of Manufacturers in Response to Currency AppreciationYen appreciation: Japanese manufacturersJapanese auto industryCut the yen prices of their autosFalling unit-profit m

14、arginsReduced manufacturing costsIncreasing worker productivityImporting materials and partsOutsourcing larger amounts of a vehicles production to transplant factories14Hitachis global diversification permitted it to sell TVs in the United States without raising prices as the yen appreciated against

15、 the dollar.15Coping with the yens appreciation: Hitachis geographic diversification as a manufacturer of television setsFIGURE 5.1Cost-Cutting Strategies of Manufacturers in Response to Currency AppreciationDollar appreciation: U.S. manufacturers1996-2002, dollar appreciated by 22%Sipco Molding Tec

16、hnologiesPartnership with an Austrian companyAustrian company - designing and making the toolsSipco simply resold them16Cost-Cutting Strategies of Manufacturers in Response to Currency AppreciationDollar appreciation: U.S. manufacturersAmerican Feed Co. - pact with a Spanish companyDivvying up the w

17、ork to keep both factories operating (U.S. and Spain)Benefits of having a European production base Without having to take on the risks of building its own factory thereRedesigned: more efficient and less expensive to build17Will Currency Depreciation Reduce a Trade Deficit? Currency depreciationImpr

18、ove a nations competitivenessReducing its costs and pricesThe elasticity approach Relative price effects of depreciationDepreciation works best when demand elasticities are high18Will Currency Depreciation Reduce a Trade Deficit? The absorption approach Income effects of depreciationA decrease in do

19、mestic expenditure relative to income must occur for depreciation to promote trade equilibriumThe monetary approachEffects depreciation has on the purchasing power of money and the resulting impact on domestic expenditure levels 19Will Currency Depreciation Reduce a Trade Deficit? The Elasticity App

20、roachElasticity of demand Responsiveness of buyers to changes in pricePercentage change in the quantity demanded stemming from a one percent change in price1, elastic demand1, inelastic demand=1, unitary elastic demand20Elasticity approach(In foreign currency)Both sides of the equation solve partial

21、 differential E:Will Currency Depreciation Reduce a Trade Deficit? The Elasticity ApproachMarshall-Lerner conditionDepreciation will improve the trade balance ifThe currency-depreciating nations demand elasticity for imports Plus the foreign demand elasticity for the nations exports exceeds oneDepre

22、ciation will worsen the trade balance ifThe sum of the demand elasticities is less than oneThe trade balance will be neither helped nor hurt if the sum of the demand elasticities equals one2223Effect of pound depreciation on the trade balance of the United KingdomTABLE 5.3Will Currency Depreciation

23、Reduce a Trade Deficit? The Elasticity ApproachMarshall-Lerner conditionSimplifying assumptionsA nations trade balance is in equilibrium when the depreciation occursNo change in the sellers prices in their own currencyIllustrates the price effects of currency depreciation on the home-countrys trade

24、balance2425Long-term price elasticities of demand for total imports and exports of selected countriesTABLE 5.4J-Curve Effect: Time Path of DepreciationJ-curve effectIn the very short term, a currency depreciation will lead to a worsening of a nations trade balanceBut as time passes, the trade balanc

25、e will likely improveBecause of lags between changes in relative prices and the quantities of goods traded26J-Curve Effect: Time Path of DepreciationTypes of lagsRecognition lagsOf changing competitive conditionsDecision lags In forming new business connections and placing new ordersDelivery lags Be

26、tween the time new orders are placed and their impact on trade and payment flows is felt27J-Curve Effect: Time Path of DepreciationTypes of lagsReplacement lags In using up inventories and wearing out existing machinery before placing new ordersProduction lags Involved in increasing the output of co

27、mmodities for which demand has increased2829Depreciation flowchartFIGURE 5.2Between 1980 and 1987, the U.S. merchandise trade deficit expanded at a rapid rate. The trade deficit decreased substantially between 1988 and 1991. The rapid increase in the trade deficit that took place during the early 19

28、80s occurred mainly because of the appreciation of the dollar at the time, which resulted in a steady increase in imports and a drop in U.S. exports. The depreciation of the dollar that began in 1985 led to a boom in exports in 1988 and a drop in the trade deficit through 1991.30Time path of U.S. ba

29、lance of trade (billions of dollars) in response to dollar appreciation and depreciationFIGURE 5.3Exchange Rate Pass-ThroughExchange rate pass-through relation The extent to which changing currency values lead to changes in import and export pricesBuyers have incentives to alter their purchases of f

30、oreign goods If the prices of foreign goods change in terms of their domestic currencyExporters willingness to change the prices they charge for their goodsMeasured in terms of the buyers currency31Exchange Rate Pass-ThroughPartial exchange rate pass-throughPercentage change in import prices percent

31、age change in the exchange rateExchange rate pass-through tend to be partial becauseInvoicing practices (choose the profitable currency)Market-share considerationsDistribution costs (the front and the back)3233Exchange rate pass-through into import prices after one yearTABLE 5.5Exchange Rate Pass-Th

32、roughInvoicing practicesChoose the currency to invoice exportsOwn home currencyCurrency of their customersU.S. trade dollars3435Use of the U.S. dollar in export and import invoicing, 20022004TABLE 5.6Exchange Rate Pass-ThroughMarket-share considerations Foreign producersPreserve market share for goo

33、ds sold in the U.S.Accept a lower profit margin when their currency appreciates ,To keep their dollar prices constant against American competitorsRelatively strong domestic competition for imported goods in the U.S.Lessen the extent of exchange rate pass-through into import prices36Exchange Rate Pas

34、s-ThroughDistribution costsCosts of distributing the imported good to the final consumerTransportationMarketingWholesalingRetailing costs40% of overall U.S. consumer prices37Why a dollar depreciation may not close the U.S. trade deficitU.S. trade deficit - high levels Dollar depreciation to reduce t

35、he U.S. appetite for foreign goods U.S. partial exchange rate pass-throughThe near-exclusive use of the dollar in invoicing U.S. tradeThe market share strategies of foreign exportersSizable U.S. distribution costs added to U.S. imports.38Why a dollar depreciation may not close the U.S. trade deficit

36、Dollar depreciationU.S. imports and consumer prices unresponsiveTrade balance adjustment Through exchange-rate changesNot from a reduction of importsBut from a reduction in U.S. export prices39The Absorption Approach to Currency DepreciationThe absorption approach Impact of depreciation on the spend

37、ing behavior of the domestic economy Influence of domestic spending on the trade balanceTotal spending = consumption (C) + investment (I) + government expenditures (G) + net exports (X-M)40The Absorption Approach to Currency DepreciationTotal domestic output (Y) = level of total spendingY = C + I +

38、G + (X-M)Absorption, A = C + I + GBalance of trade, B = (X-M)Total domestic output (Y) = Absorption (A) +Net exports (B)B = Y A41The Absorption Approach to Currency DepreciationBalance of trade (B) = Total domestic output (Y) - Level of absorption (A)Positive trade balance: national output exceeds domestic absorptionNegative trade balance: an economy is spending beyond its ability to produce42The Absorption Approach to Currency DepreciationThe absorption approach Currency depreciation will improve an economys trade balance On