11 the macroeconomics of open economies. copyright © 2004 south-western 31 open-economy...

11

THE MACROECONOMICS OF OPEN ECONOMIES

Copyright © 2004 South-Western

3131Open-Economy Macroeconomics: Basic

ConceptsGrunnatriði í þjóðhagfræði

við aðstæður opins hagkerfis


Open-Economy Macroeconomics: Basic Concepts

• Open and Closed Economies• A closed economy is one that does not interact with

other economies in the world. Lokað hagkerfi á ekki samskipti við önnur hagkerfi í heiminum

• There are no exports, no imports, and no capital flows. Við þær aðstæður er enginn útflutningur, enginn innflutningur og ekkert fjármagnsflæði.

• An open economy is one that interacts freely with other economies around the world. Opið hagkerfi er það sem hefur frjáls samskipti við önnur hagkerfi í heiminum.


Open-Economy Macroeconomics: Basic Concepts

• An Open Economy• An open economy interacts with other countries in

two ways. Opið hagkerfi á samskipti við önnur lönd á tvennan máta

• It buys and sells goods and services in world product markets. Það kaupir og selur vörur og þjónustu á heimsmarkaði fyrir ólíkar vörur.

• It buys and sells capital assets in world financial markets. Það kaupir og selur fjármunaeignir á fjármálamörkuðum heimsins.


The Flow of Goods: Exports, Imports, Net Exports

• Exports are goods and services that are produced domestically and sold abroad. Útflutningur nær yfir vörur og þjónustu sem framleidd eru á heimamarkaði (innanlands) og seld erlendis.

• Imports are goods and services that are produced abroad and sold domestically. Innflutningur nær yfir vörur og þjónustu sem framleidd eru utan heimamarkaðar (erlendis) og seld innanlands.



• Net exports (NX) are the value of a nation’s exports minus the value of its imports. Nettó útflutingur (NX) er virði útflutnings þjóðarinnar mínus virði innflutnings þess.

• Net exports are also called the trade balance. Nettó útflutningur er líka kallaður viðskiptajöfnuður.



• A trade deficit is a situation in which net exports (NX) are negative. Viðskiptahalli skapast þegar nettó útflutningur (NX) er neikvæður.• Imports > Exports Innflutningur > Úflutningur

• A trade surplus is a situation in which net exports (NX) are positive. Viðskiptaafgangur skapast þegar nettó útflutningur (NX) er jákvæður.• Exports > Imports Úflutningur > Innflutningur

• Balanced trade refers to when net exports are zero—exports and imports are exactly equal. Jöfnuður í viðskiptum vísar til þess ástands þegar nettó útflutningur er núll – útflutningur og innflutningur er alveg jöfn.


The Flow of Goods: Exports, Imports, Net Exports Flæði vara: Útflutningur, innflutningur, nettó útflutningur

• Factors That Affect Net Exports Þættir sem áhrif hafa á nettó útflutning• The tastes of consumers for domestic and foreign

goods. Smekkur neytenda fyrir vörur framleiddar á heimamarkaði og vörur framleiddar erlendis

• The prices of goods at home and abroad. Verð vara á heimamarkaði og erlendis.

• The exchange rates at which people can use domestic currency to buy foreign currencies. Við hvaða gengi fólk þarf að miða við kaup á erlendum gjaldeyri.



• Factors That Affect Net Exports Þættir sem áhrif hafa á nettó útflutning• The incomes of consumers at home and abroad.

Tekjur neytenda heima og erlendis• The costs of transporting goods from country to

country. Kostnaður við að flytja vörur frá einu landi til annars.

• The policies of the government toward international trade. Stefna stjórnvalda varðandi alþjóðaviðskipti.

Figure 1 The Internationalization of the U.S. Economy

Percentof GDP

0

5

10

15

1950 1955 1960 1965 1970 1975 1980 19901985 20001995

Exports

Imports



The Flow of Financial Resources: Net Capital Outflow

• Net capital outflow refers to the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. Nettó fjármagnsútflæði vísar til kaupa heimaaðila á erlendum eignu, mínus kaupa útlendinga á eignum á heimamarkaði.• A U.S. resident buys stock in the Toyota

corporation and a Mexican buys stock in the Ford Motor corporation. Íbúi í Bandaríkjunum kaupir hlut í Toyota fyrirtækinu í Japan og mexikóbúi kaupir hlut í Ford Motor í Bandaríkunum.


The Flow of Financial Resources: Net Capital Outflow

• When a U.S. resident buys stock in Telmex, the Mexican phone company, the purchase raises U.S. net capital outflow. Þegar íbúi í Bandaríkjunum kaupir hlut í Telmex, mexikönsku símafyrirtæki, þá auka kaupin nettó útflæði fjármagns frá Bandaríkjunum.

• When a Japanese residents buys a bond issued by the U.S. government, the purchase reduces the U.S. net capital outflow. Þegar íbúi í Japan kaupir skuldabréf gefið út af Bandaríkjastjórn, þá lækka kaupin nettó útflæði fjármagns frá Bandaríkjunum.


The Flow of Financial Resources: Net Capital Outflow Flæði fjármangsuppsprettna: Nettó fjármagnsflæði

• Variables that Influence Net Capital Outflow Breytur sem áhrif hafa á nettó útflæði fjármagns.• The real interest rates being paid on foreign assets.

Raunvextirnir sem greiddir eru á erlendar eignir.• The real interest rates being paid on domestic assets.

Raunvextirnir sem greiddir eru á eignir heimafyrir.• The perceived economic and political risks of holding

assets abroad. Hagræn og pólitísk áhætta af að eiga eignir erlendis

• The government policies that affect foreign ownership of domestic assets. Stefnumörkun stjórnvalda sem áhrif hefur á erlenda eignaraðild eigna á heimamarkaði.


The Equality of Net Exports and Net Capital Outflow Jafngildi nettó útflutnings og nettó fjármagnsútflæðis

• Net exports (NX) and net capital outflow (NCO) are closely linked. Nettó útflutningur og nettó útflæði fjármagns eru skyldar stærðir.

• For an economy as a whole, NX and NCO must balance each other so that: Fyrir hagkerfið í heild verða þessar stærðir að jafna hvor aðra út svo að

NCO = NX

• This holds true because every transaction that affects one side must also affect the other side by the same amount. Þetta stenst því sérhver færsla sem áhrif hefur á annarri hliðinni hlýtur líka að hafa áhrif á hina hliða á sama tíma.


Saving, Investment, and Their Relationship to the International Flows

• Net exports is a component of GDP:

Y = C + I + G + NX

• National saving is the income of the nation that is left after paying for current consumption and government purchases:

Y - C - G = I + NX


Saving, Investment, and Their Relationship to the International Flows

• National saving (S) equals Y - C - G so:

S = I + NX

or

Saving Domestic Investment

Net Capital Outflow

= +

S I NCO= +

Figure 2 National Saving, Domestic Investment, and Net Foreign Investment

Percentof GDP

20

18

16

14

12

101960 1965 199519901985198019751970

(a) National Saving and Domestic Investment (as a percentage of GDP)

2000

Domestic investment

National saving


Figure 2 National Saving, Domestic Investment, and Net Foreign Investment

Percentof GDP

4

–4

–3

–2

–1

0

1

2

3

Net capitaloutflow

(b) Net Capital Outflow (as a percentage of GDP)

1960 1965 199519901985198019751970 2000



THE PRICES FOR INTERNATIONAL TRANSACTIONS: REAL AND NOMINAL

EXCHANGE RATES• International transactions are influenced by

international prices. Alþjóðlegar færslur verða fyrir áhrif af verði á alþjóðamarkaði.

• The two most important international prices are the nominal exchange rate and the real exchange rate. Þeir tveir þættir sem mest hafa áhrif á verð á alþjóðamarkaði eru nafngengi og raungengi.


Nominal Exchange Rates

• The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another. Nafngengið er það gengi sem aðili getur skipt gjaldeyri eins lands út fyrir gjaldeyri annars.



• The nominal exchange rate is expressed in two ways:• In units of foreign currency per one U.S. dollar.• And in units of U.S. dollars per one unit of the

foreign currency.



• Appreciation refers to an increase in the value of a currency as measured by the amount of foreign currency it can buy. Gengishækkun vísar til aukins verðmætis gjaldeyris, mælt í því magni af erlendum gjaldeyri sem það dugar fyrir.

• Depreciation refers to a decrease in the value of a currency as measured by the amount of foreign currency it can buy. Gengislækkun vísar til minna verðmætis gjaldeyris, mælt í því magni af erlendum gjaldeyri sem það dugar fyrir.


Real Exchange Rates

• The real exchange rate is the rate at which a person can trade the goods and services of one country for the goods and services of another. Raungengi er það gengi sem aðili getur átt viðskipti með vörur og þjónustu eins lands fyrir vörur og þjónustu í öðru landi.


Real Exchange Rates

• The real exchange rate compares the prices of domestic goods and foreign goods in the domestic economy.• If a case of German beer is twice as expensive as

American beer, the real exchange rate is 1/2 case of German beer per case of American beer.


Real Exchange Rates

• The real exchange rate depends on the nominal exchange rate and the prices of goods in the two countries measured in local currencies.


Real Exchange Rates

• The real exchange rate is a key determinant of how much a country exports and imports.

R eal ex ch an g e ra te =N o m in a l ex ch an g e ra te D o m estic p rice

F o re ig n p rice


Real Exchange Rates

• A depreciation (fall) in the U.S. real exchange rate means that U.S. goods have become cheaper relative to foreign goods. Gengisfelling á raungengi Bandaríkjadals þýðir að bandarískar vörur eru orðnar ódýrari í hlutfalli við erlendar vörur.

• This encourages consumers both at home and abroad to buy more U.S. goods and fewer goods from other countries. Þetta hvetur neytendur bæði heima og erlendis til þess að kaupa meiri bandarískar vörur og færri vörur frá öðrum löndum.


Real Exchange Rates

• As a result, U.S. exports rise, and U.S. imports fall, and both of these changes raise U.S. net exports.

• Conversely, an appreciation in the U.S. real exchange rate means that U.S. goods have become more expensive compared to foreign goods, so U.S. net exports fall.


A FIRST THEORY OF EXCHANGE-RATE DETERMINATION:

PURCHASING-POWER PARITY• The purchasing-power parity theory is the

simplest and most widely accepted theory explaining the variation of currency exchange rates. Kenninging um kaupmáttarjöfnuð (jafnvirðisgengi) er einfaldasta og almennt viðurkenndasta kenningin við að skýra breytileika í gengi gjaldmiðla.


The Basic Logic of Purchasing-Power Parity

• Purchasing-power parity is a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

• Kenninging um kaupmáttarjöfnuð (jafnvirðisgengi) er kenning um gengi þar sem eining af sérhverjum gjaldmiðli ætti að duga til að kaupa sama magn af vörum í öllum löndum.


The Basic Logic of Purchasing-Power Parity

• According to the purchasing-power parity theory, a unit of any given currency should be able to buy the same quantity of goods in all countries. Miðað við kenninguna um kaupmáttarjöfnuð, þá ætti eining tiltekins gjaldmiðils að duga til að kaupa sama magn af vörum í öllum löndum.


Basic Logic of Purchasing-Power Parity

• The theory of purchasing-power parity is based on a principle called the law of one price. Kenninging um kaupmáttarjöfnuð byggir á lögmáli sem kallast lögmálið um eitt verð.• According to the law of one price, a good must sell

for the same price in all locations. Samkvæmt lögmálinu um eitt verð, verður vara að seljast á sama verði allsstaðar.


Implications of Purchasing-Power Parity

• If the purchasing power of the dollar is always the same at home and abroad, then the exchange rate cannot change.

• The nominal exchange rate between the currencies of two countries must reflect the different price levels in those countries.


Implications of Purchasing-Power Parity

• When the central bank prints large quantities of money, the money loses value both in terms of the goods and services it can buy and in terms of the amount of other currencies it can buy.

Figure 3 Money, Prices, and the Nominal Exchange Rate During the German Hyperinflation

10,000,000,000

1,000,000,000,000,000

100,000

1

.00001

.00000000011921 1922 1923 1924

Exchange rate

Money supply

Price level

1925

Indexes(Jan. 1921 5 100)



Limitations of Purchasing-Power Parity

• Many goods are not easily traded or shipped from one country to another.

• Tradable goods are not always perfect substitutes when they are produced in different countries.

11 the macroeconomics of open economies. copyright © 2004 south-western 31 open-economy...

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