Download - EW Bop 2
-
8/9/2019 EW Bop 2
1/53
Balance ofPayments and
Exchange Rates
-
8/9/2019 EW Bop 2
2/53
UK balance of payments: 2001 ($ millions
-
8/9/2019 EW Bop 2
3/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
4/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
5/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
6/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
7/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
8/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
9/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
10/53
"he Balance of Payments #cco nt
• "he capital acco nt• "he financial acco nt
– in%estment
• di&ect• po&tfolio
– othe& financial flo's (mainly sho&t te&m
-
8/9/2019 EW Bop 2
11/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
12/53
"he Balance of Payments #cco nt
• "he capital acco nt• "he financial acco nt – in%estment
• di&ect• po&tfolio
– othe& financial flo's (mainly sho&t te&m – flo's to and f&om &ese&%es
-
8/9/2019 EW Bop 2
13/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
14/53
"he Balance of Payments #cco nt
• "he capital acco nt• "he financial acco nt – in%estment
•di&ect• po&tfolio
– othe& financial flo's (mainly sho&t te&m – flo's to and f&om &ese&%es – financial acco nt balance
-
8/9/2019 EW Bop 2
15/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
16/53
"he Balance of Payments #cco nt
• "he capital acco nt• "he financial acco nt – in%estment
•di&ect• po&tfolio
– othe& financial flo's (mainly sho&t te&m – flo's to and f&om &ese&%es – financial acco nt balance
• %e&all balance of payments
-
8/9/2019 EW Bop 2
17/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
18/53
UK balance of payments: 2001 (! millions
-
8/9/2019 EW Bop 2
19/53
) RE*+ E,-.#+*E /#RKE"
• he&e fo&eign c &&encies a&e bo ght and sold (B expo&t $120 3 mil and
impo&t $1 11 mil4 se&%ices $1565 and $275 8 9ncome $25 and $11268Remittances $ 7
• /ain agents: Ban;s4 B&o;e&s4 money change&s etc<
• =o &ces of demand of fo&eign c &&ency
- 9mpo&t of goods and se&%ices4 b ying assets o& in%estment ab&oad4paying debt
- =o &ces of s pply
- Expo&t of goods and se&%ices4 &emittances4 in%estment at home4
-
8/9/2019 EW Bop 2
20/53
hat is Exchange Rate>
• 9t is the &ate of exchange bet'een t'oc &&encies<• (a + mbe& of home c &&ency pe& nit of
fo&eign c &&ency e
-
8/9/2019 EW Bop 2
21/53
1.00
1.20
1.40
1.60
1.80
2.00
2.20
0
$ p
r i c e
o f £
D by USA
Q of £
ete&mination of the &ate of exchange
-
8/9/2019 EW Bop 2
22/53
1.00
1.20
1.40
1.60
1.80
2.00
2.20
0
$ p
r i c e
o f £
Q S
S by UK
Q of £
ete&mination of the &ate of exchange
D by USA
Q D
b a
-
8/9/2019 EW Bop 2
23/53
1.00
1.20
1.40
1.60
1.80
2.00
2.20
0 Q S Q D
d $ p
r i c e
o f £
ete&mination of the &ate of exchangeS by UK
Q of £
c
D by USA
-
8/9/2019 EW Bop 2
24/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation
-
8/9/2019 EW Bop 2
25/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
-
8/9/2019 EW Bop 2
26/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
€
£
S 1
D 1
Q of £
-
8/9/2019 EW Bop 2
27/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
-
8/9/2019 EW Bop 2
28/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
-
8/9/2019 EW Bop 2
29/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
• diffe&ences in inte&est &ates
-
8/9/2019 EW Bop 2
30/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
-
8/9/2019 EW Bop 2
31/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
• diffe&ences in inte&est &ates• diffe&ences in inflation &ates
)l h l b
-
8/9/2019 EW Bop 2
32/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
-
8/9/2019 EW Bop 2
33/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
• diffe&ences in inte&est &ates• diffe&ences in inflation &ates• &elati%e in%estment p&ospects
)l i h & % ' A ilib&i
-
8/9/2019 EW Bop 2
34/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
h
-
8/9/2019 EW Bop 2
35/53
Exchange Rates
• "he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
• diffe&ences in inte&est &ates• diffe&ences in inflation &ates• &elati%e in%estment p&ospects• change in agg&egate demand
)l i h & % ' A ilib&i
-
8/9/2019 EW Bop 2
36/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
E h R
-
8/9/2019 EW Bop 2
37/53
Exchange Rates
•"he &ate of exchange – indi%id al &ates of exchange – exchange &ate index
• ete&mination of exchange &ates – the eA ilib&i m exchange &ate – app&eciation and dep&eciation – shifts in c &&ency demand and s pply
• diffe&ences in inte&est &ates• diffe&ences in inflation &ates• &elati%e in%estment p&ospects• change in agg&egate demand• spec lation
)l ti g h g & t % t t ' A ilib&i
-
8/9/2019 EW Bop 2
38/53
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0
€
£
S 1
D 1
S 2
D 2
Q of £
)loating exchange &ates: mo%ement to a ne' eA ilib&i m
E h R d B l f P
-
8/9/2019 EW Bop 2
39/53
Exchange Rates and Balance of Payments
•Exchange &ates and the balance ofpayments: no go%e&nment inte&%ention
– a floating exchange &ate
• ho' &ates a&e dete&mined by deale&s
– a tomatic balancing of o%e&all balance of
payments – c &&ent4 capital and financial acco nts may
not sepa&ately balance
E h R d B l f P
-
8/9/2019 EW Bop 2
40/53
•Exchange &ates and the balance ofpayments: go%e&nment inte&%ention – &ed cing sho&t te&m fl ct ations
• sing &ese&%es• bo&&o'ing f&om ab&oad• changes in inte&est &ates
– maintaining a fixed &ate of exchange o%e&
the longe& te&m• deflation @ &eflation• s pply side policies• impo&t cont&ols
Exchange Rates and Balance of Payments
)i d % & )l i E h R
-
8/9/2019 EW Bop 2
41/53
)ixed %e&s s )loating Exchange Rates
•#d%antages of fixed exchange &ates – ce&tainty – no spec lation (if &ate is absol tely fixed – p&e%ents Ci&&esponsibleC go%e&nment policies
• isad%antages of fixed exchange &ates – conflicts 'ith othe& mac&o obDecti%es – dange& of competiti%e deflations – p&oblems of inte&national liA idity – diffic lties in adD sting to shoc;s – spec lation
)i d % & )l ti E h R t
-
8/9/2019 EW Bop 2
42/53
)ixed %e&s s )loating Exchange Rates
•#d%antages of f&ee floating &ates – a tomatic co&&ection – no p&oblem of inte&national liA idity – ins lation f&om exte&nal e%ents – less const&aint on domestic mac&o policy
• isad%antages of f&ee floating &ates – possibly nstable exchange &ates
– spec lation – nce&tainty fo& b siness
• b t se of fo&'a&d ma&;ets – lac; of discipline on economy
"h &i i f th E &
-
8/9/2019 EW Bop 2
43/53
"he &igins of the E &o
•Post 'a& &eg lation of exchange &ates – the B&etton oods system – its collapse in the ea&ly 1 70s – di&ty floating
• "he ER/ – feat &es of the ER/ – the 1 60s
– c&isis in the ER/• e%ents of 1 2• e%ents of 1 3
– a &et &n of calm
-
8/9/2019 EW Bop 2
44/53
E & E i d / t & U i
-
8/9/2019 EW Bop 2
45/53
E &opean Economic and /oneta&y Union
• .o' desi&able is E/U> – #d%antages of a single c &&ency
• eliminating con%e&sion costs• inc&eased competition and efficiency
• elimination of exchange &ate nce&tainty• inc&eased in'a&d in%estment• lo'e& inflation and inte&est &ates
– isad%antages of E/U
• political a&g ments• adD stment to shoc;s
– p&oblem of asymmet&ic shoc;s• EU12 may not be an optimal c &&ency a&ea
• &egional p&oblems
*l b li ti d th P& bl f 9 t bilit
-
8/9/2019 EW Bop 2
46/53
*lobalisation and the P&oblem of 9nstability
•9nte&dependence th&o gh t&ade – inte&national effects of changes in
agg&egate demand
– % lne&ability of open economies
• )inancial inte&dependence
– si e of inte&national financial flo's
– inte&national effects of changes in inte&est&ates
*lobalisation and the P&oblem of 9nstability
-
8/9/2019 EW Bop 2
47/53
*lobalisation and the P&oblem of 9nstability
• "he need fo& policy co o&dination – the sea&ch fo& policy co o&dination
• *7@*6 meetings: attempts at ha&monisation• b t lac; of con%e&gence
• iffic lties in achie%ing ha&monisation – diffe&ences in b dget deficits and debt
– inte&est &ate di%e&gence – diffe&ent inte&nal st& ct &es of economies – politicians mo&e conce&ned 'ith domestic
iss es
ebt and e%eloping o nt&ies
-
8/9/2019 EW Bop 2
48/53
ebt and e%eloping -o nt&ies
• "he debt p&oblem
-
8/9/2019 EW Bop 2
49/53
ebt &atios: a%e&age of all de%eloping co nt&ies
-
8/9/2019 EW Bop 2
50/53
ebt &atios: a%e&age of all de%eloping co nt&ies
-
8/9/2019 EW Bop 2
51/53
ebt &atios: a%e&age of all de%eloping co nt&ies
ebt and e%eloping o nt&ies
-
8/9/2019 EW Bop 2
52/53
ebt and e%eloping -o nt&ies
• &igins of the debt p&oblem – bo&&o'ing to finance de%elopment – the 1 73@5 oil shoc;
– the 1 7 @60 oil shoc;• 'o&ld &ecession fall in expo&t ea&nings• fall in commodity p&ices (expo&ts• high inte&est &ates cost of se&%icing debt
• Resched ling debt – &esched ling official loans – &esched ling comme&cial ban; loans
ebt and e%eloping o nt&ies
-
8/9/2019 EW Bop 2
53/53
ebt and e%eloping -o nt&ies
• ealing 'ith debt – st& ct &al &efo&ms – 9/) st& ct &al adD stment p&og&ammes
• tight fiscal policies to &ed ce b dget deficits• p&i%atisation and ma&;et libe&alisation• open t&ade policy• ha&dship f&om 9/) p&og&ammes
– debt fo&gi%eness• .9P- initiati%e
– s ccesses @ fail &es to date
• p&ess &e to cancel debts