Otpt an the Exchange Rate in the Shrt Rn 国际金融英文.ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 16-* Value Effect, Volume Effect and the J-Curve (cont.) J-curve: value effect dominates volume effect volume effect dominates value effect Immediate effect of real depreciation on the CA 16-* Value Effect, Volume Effect and the J-curve (cont.) Pass through from the exchange rate to import prices measures the percentage by which import prices rise when the domestic currency depreciates by 1%. In the DD-AA model, the pass through rate is 100%: (Assumption) import prices in domestic currency exactly match a depreciation of the domestic currency. In reality, pass through may be less than 100% due to price discrimination in different countries. firms that set prices may decide not to match changes in the exchange rate with changes in prices of foreign products denominated in domestic currency. 16-* Value Effect, Volume Effect and the J-curve (cont.) If prices of foreign products in domestic currency do not change much because of a pass through rate less than 100%, then the value of imports will not rise much after a domestic currency depreciation, and the current account will not fall much, making the J-curve effect smaller. volume of imports and exports will not adjust much over time since domestic currency prices do not change much. Pass through less than 100% dampens the effect of depreciation or appreciation on the current account. PP449-450 (436-438) 16-* Appendix II : Marshall –Lerner condition CA(EP*/P, Yd)= EX(EP*/P)－ IM（EP*/P, Yd） Let q= EP*/P, EX*= domestic imports measured in terms of foreign output IM=q × EX* CA(q, Yd)= EX(q)－ q × EX*（q, Yd） 16-* Let EXq =△EX/△q （＋） EX*q =△EX*/△q （－） △CA= CA2 － CA1=( EX2－q2×EX*2) －(EX1－q1×EX*1) q1=q2 － △q △CA ＝ △EX －(q2×△EX*)－（△q ×EX*1） △CA/ △q ＝EXq－(q2×EX*q) －EX*1 (1) 16-* Let η=(q1/EX1) EXq， elasticity of export demand; η*=－(q1/EX*1) EX*q elasticity of import demand Suppose CA is initially zero: EX1 = q1× EX*1