exchange rate and trade dynamics peter bekx european commission gen è ve, 27 march 2012
TRANSCRIPT
Exchange rate and trade dynamics
Peter BEKX European Commission
Genève, 27 March 2012
Outline
1. Global imbalances pose an increasing threat to global economic stability, again
2. Empirical studies show that exchange rates do matter
3. Experiences in advanced and emerging Europe show that policy changes are needed to address imbalances
4. Conclusions
Global imbalances are returning
-3
-2
-1
0
1
2
3
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
US OCADC ROW OIL
DEU+JPN CHN+EMA Discrepancy
XR misalignments
Country Study Methodology Euro area United Kingdom China Japan United States
Coudard and Couharde (2005) FEER -23 to -44 Coudard and Couharde (2005) BEER -20 to -50 Cline (2008) FEER 7.2 6.6 -18.4 -5.7 8.6 Benassy-Quére et al. (2008) FEER 6.3 6.6 -31.1 -31.7 30.6 Benassy-Quére et al. (2008) BEER 8.1 15.9 -35.6 -0.9 4.7 Cheung et al. (2008) BEER (PPP-based) -3 to – 15 Reisen (2010) BEER (PPP-based) -15 Subramanian (2010) BEER (PPP-based) -14.5 to -47.4
Empirical analysis
Macroeconomic trade equations for exports and imports
Export equation: Import equation:
General equilibrium model simulations
tttt ereeryx lnlnln 2*
10
tttt urelpriceym lnlnln 210
Euro area current account
70
75
80
85
90
95
100
105
110
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
CA bal, % of GDP REER Euro17 (jan99=100)
% of GDPJan99=100
Real effective exchange rates and catching-up
Source: IMF IFS and World Bank GDF
1992-2011
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Emg EU China Brazil Russia
REER appreciation GDP per capita growth
Emerging Europe: improving export performance while facing appreciation
Source: ECFIN Economic Paper no 366, March 2009
Conclusions
• Exchange rates do matter
• And should form part of the solution
• But policy changes in other fields are as much part of the solution
Economic integration can support the necessary structural reforms