ppt课件-balanceofpaymentsadjustmentpolicies-tutor2u.pptVIP

* * * * * * * * Balance of Payments Adjustment Policies Policies to correct a BoP imbalance Most discussions focus on countries running a current account deficit But persistent surpluses can also be a problem! Both deficit and surplus can be described as a disequilibrium Evaluation might consider: Automatic partial correction of a deficit Demand-side policies Supply-side policies The consequences of policies for other macroeconomic objectives such as growth, inflation and jobs Deficits and Surpluses as a share of GDP Why might the deficit as a share of GDP be a better guide to the size of a trade imbalance? Are deficits self-correcting? Some partial self-correction Economic slowdown and recession Squeeze on real incomes and output Fall in import demand Releases capacity for exporting Deficit might lead to depreciation in the exchange rate Change in relative prices of exports and imports Expenditure-switching towards exports and away from imports Depends on price elasticity of demand for X and M and also elasticity of supply The US trade deficit and their recession Note the steep fall in the trade deficit as the economy hit recession. Why is income elasticity of demand important in this chart? But what are the wider economic effects? Expenditure switching Expenditure switching: Change in relative prices of X and M Changes incentives for consumers Changes profitability of exporting Can be caused by Movement in the exchange rate Introduction of import tariffs and other forms of protectionism Period of high or low relative inflation Key point is whether trade volumes respond to changing prices I.e. price elasticity of demand for X and M Does a depreciation cut the trade deficit? Any evidence for the UK? The J Curve Effect of a depreciation on the trade deficit depends on price elasticity of demand. In the short term, demand is often inelastic – limits extra revenue from exports Demand for M is inelastic – higher prices cause a rise in total spending on imports The