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在理论上，当一国货币贬值，外国人发现出口更便宜，国内居民发现进口更加昂贵。即：强（升值）欧元意味着欧洲可以买到更便宜的外国产品和外国人发现欧洲的商品越来越贵，需求下降。当欧元贬值（弱），相反的情况发生。因此，一个依赖于出口的国家需要一个更弱的货币，因为如果它太高，它将失去竞争。例如：日本，一个高度依赖出口的国家和它的货币（日元）自2007年以来一直在升值。他们想降低日元来保持竞争：通过发行更多的日元（抛售日元到国际市场）增加供应，因此国内价格下降，从而增加竞争。相反，高进口国应该保持他们的货币坚挺。
货币贬值与贸易平衡的关系是经济学中一个有争议的话题，在文学研究中出现了各种各样的观点。一个明确的答案是困难的，不可避免的偏见，除非有强有力的证据和良好的解释支持。本文的关注是提供一个更广泛的观点的主题，而不进入复杂性和数学细节，它将专注于分析以上提出的主题为核心的观点。
In theory, when a country's currency depreciates, foreigners find that its exports are cheaper and domestic residence find that imports are more expensive. (p470, Feenstra and Taylor 2008) i.e.: stronger (appreciation) Euro implies European can buy foreign goods more cheaply and foreigners find European goods more expensive and demand falls. When Euro depreciates (weaker), the opposite scenario occurs. Thus, an exports dependant country needs a weaker currency, because if it's too high, it will lose its competition. E.g.: Japan, a highly exports dependant country and its currency (Yen) has been increasing in value since 2007. They wanted to decrease Yen to keep its competition: by issuing more Yen (sell Yen to international market) to increase supply, so domestic price decrease and thus increase competition. Conversely, high imports countries should keep their currency strong.
The relation between currency devaluation and trade balance is a controversial topic in economics and variety opinions have arisen in the literature research. A definite answer is difficult itself and inevitably bias, unless supported by strong evidences and good explanations. The attention of this paper is to offer a broader view of the topic without going into complexity and mathematical details, and it will focus on the analysis presented above as the core-view towards the topic.
Section I describes the theoretical issues in explaining the effects of devaluation on trade balance. Section II describes some competing views of literature studies on devaluation and trade balance, and section III summarizes the results and draws some conclusions.
Theoretical Review 理论综述
I.I Expenditure Switching
The assumption summarized in introduction is supported by the relevant literature that attempt to explain the relation between exchange rates and trade balance (TB). Theory such as expenditure switching (also called the absorption analysis) is in favor of devaluation help to improve trade balance: 'by switch expenditure from foreign to domestic goods, raise total production and decrease absorption relative to total production, so improving the trade balance' (Vamvoukas 2005). Assuming the prices of goods/services are fixed so that changes in the nominal exchange rate imply corresponding changes in the real exchange rate. In expenditure switching theory real exchange rate is the key, because it is the price of goods/service in a foreign country relative to the price of goods/ service in the home country. For instants, holding price level constant in both home (P) and foreign country (p*), if home country's exchange rate is 'E' then the real exchange rate 'e' of the home country is e=EP*/P (p 715 Feenstra and Taylor 2008). For example, suppose good X cost €100 in the home country (Ireland), and the same good cost £90 in the UK, the exchange rate is £0.9852 per pound. Put the information in the equation e=EP*/P, we have (£90x0.9852) [1] / €100=0.88668. This is the relative price of foreign goods in terms of home goods. It shows that good X is cheaper in the UK than in Ireland, because of the sterling's sharp depreciation (higher real exchange rate).
From home perspective, a rise in the real exchange rate (depreciation) indicates that foreign goods are become more expensive relative to home goods. As the real exchange rate rises, both home and foreign consumers will respond by expenditure switching: home country will imports less as home consumers switch to buying home goods. Thus, in the example above Irish consumer would switch to buy UK goods as UK goods get cheaper relative to Irish goods. This was indeed the case in the period of 2008-2009 where massive cross-border shopping from Ireland to the north due to the sterling depreciation. More recent example of such expenditure switching is the appreciation of Chinese RMB, people live in Shenzhen and other mainland cities are desired to spend in HK as the prices are now lower than previously (hktdc.com) [2] .
Above examples demonstrated that there is a strong correlation between real exchange rate and the trade balance (Figure 1), holding home and foreign prices fixed and the trade balance increases as real exchange rate increases: '… trade balance of the home country to be an increasing function of the home country's real exchange rate' (P715 Feenstra and Taylor 2008). This linearly relationship is illustrated in Figure 1 as the upward sloping line. In summary, currency depreciation (an increase in the real exchange rate) increases trade balance by raising exports and lowering imports: when exchange rate increase from E0 to E1, trade balance also increase from TB0 to TB1.
Another important theory in consistent of the expenditure theory that explains the relation between exchange rates and TB is the Marshall-Lerner (ML) elasticity's approach (an extension view of the expenditure switch theory), this theory also suggests that the TB will improve provided that the demand elasticity of imports (PED-imports) and exports (PED-exports) are high enough, in specific, to be greater than one. (p760 Feenstra and Taylor).
PED (exports) + PED (imports) > 1
Essentially, the greater the volume effects, the greater will be the improvement of the trade balance. '….the responsiveness of trade volumes to real exchange rate is sufficiently elastic to ensure that the volume effects exceed the price effects' (p760 Feenstra and Taylor). It has to be greater than one because of the following (example adapting the theory): suppose home country is Ireland, set PED (imports) = 1, then 1% Euro devaluation means 1% increase in price of imports and this resulting 1% reduction in quantity demanded in the domestic country(Ireland). The overall effects cancel out and the value of imports stay unchanged. Furthermore, any increase in export demand following 1% decrease in $ price of Irish goods will move the current account towards balance, i.e. must have PED (exports) > 0 (recall that price is fixed). Similarly, if PED (imports) = 0, import values rise by 1% due to the price effect and export revenues must rise by more than 1% to improve current account, i.e. require PED(exports) > 1. (Christopher, 2007)
Empirical evidence claim that the ML condition might not hold in the short run because, in the short run exports and imports tend to be less fluctuated in its volume '¦demand is more inelastic in the short run, thus the elasticity's approach represents a long-run relationship only' (Ryan, 1993). This implies that the price effect exceeds volume effect, depreciation will in fact, worsening the TB rather than improving it. As Christopher (2007) quoted that supply is inelastic especially in the short-run (Figure 2) and it is in the short-run that demand curves are most inelastic e.g. due to sluggish adjustment linked to consumer switching costs, consumption habits and the like.
This leads us to the J-curve analysis where it tends to explain the short run effects better. The essential idea is that devaluation is expected to worsen the TB in the short term. This process also reflects the shortcomings of ML where demand and supply of goods/services are inelastic in the short run and firms may not be able to immediately increase supply following a change in exchange rates, thus, allow the TB to worsen before improving. Same concept applies in the J-curve argument.
Recall the assumption in expenditure switching earlier that real depreciation improves a country's TB by increasing exports and reducing imports. ML theory also shows the same results, and with the present of ML shortcomings we know that in reality, firms do not react to the change of exchange rate immediately because orders for imports /exports are placed in advance and payment occurs later period. This lag indicates that after depreciation exports will remain the same for a period of time (quantity and price), the only change is the price paid for domestic imports. Goods in domestic county will now cost more compare to pre-depreciation, but with the same quantity. When imports price become more expensive with a fixed earnings for exports. The TB will therefore to fall (initially) rather than rise as shown in Figure 3. This lag may take some time to adjust, until an imports and exports price reflects the currency depreciation. TB is expected to improve when this new price level is reached (p 721 Feenstra and Taylor, 2008). |
