國(guó)際貿(mào)易與金融II(雙語)課程國(guó)際經(jīng)濟(jì)學(xué)13課件

1、1International Economics Lectured by Yuanfen TuSchool of International Trade and Economics Email:國(guó)際經(jīng)濟(jì)學(xué)1International Economics Lectu2International EconomicsBy Robert J. Carbaugh9th EditionChapter 13:Exchange-Rate Determination2International EconomicsBy Ro3Exchange-Rate DeterminationMain ContentsThis

2、 chapter seeks to explain the forces that underlie currency appreciation and deprecation under a system of market-determined (floating) exchange rates.3Exchange-Rate DeterminationMa4Exchange-rate determination in a free marketIf we are to understand why some currencies depreciate and other appreciat

3、e, we must investigate the factors that cause the supply and demand schedules of currencies to change.These factors include market fundamentals (economic variables) and market expectations.Exchange-Rate Determination4Exchange-rate determination iExchange-Rate DeterminationFactors influencing exchang

4、e ratesMarket fundamentals(市場(chǎng)基本要素）Bilateral trade balancesReal incomeReal interest ratesInflation ratesConsumer preferences for domestic or foreign productsProductivity changes affecting production costsProfitability and riskiness of investmentsExchange-Rate DeterminationFacFactors influencing excha

5、nge ratesMarket fundamentals (contd)Product availabilityMonetary policy and fiscal policyGovernment trade policyMarket expectations（市場(chǎng)預(yù)期）News about future market fundamentalsSpeculative opinion about future exchange ratesExchange-Rate DeterminationFactors influencing exchange rWhen are these factors

6、 important?Short run (days)Dominated by financial transfers responding to:Differences in real interest ratesShifting expectations of future exchange ratesMedium run (months)Primarily influenced by economic cyclesExchange-Rate DeterminationWhen are these factors importaWhen are these factors importan

7、t?Long run (years)Dominated by movements of goods, services, investment, which are influenced by:Inflation ratesInvestment profitabilityConsumer tastesReal incomeProductivityTrade policyHow these factors interact to affect exchange rates depends on the relative importance of trade and financial rela

8、tions between the countriesExchange-Rate DeterminationWhen are these factors importaWhen are these factors important?Exchanges rates are determined simultaneously by long-run structural, medium-run cyclical, and short-run speculative forces.There exists some equilibrium level or path to which a curr

9、ency will eventually gravitate.Exchange-Rate DeterminationWhen are these factors importa國(guó)際貿(mào)易與金融II(雙語)課程國(guó)際經(jīng)濟(jì)學(xué)13Factors influencing exchange ratesReal income differentialsA country with faster economic growth than the rest of the world will have a depreciating currency (other things being equal)Import

10、s rise faster than exports, so demand for foreign currency rises faster than its supplyFactors influencing exchange rImpact of real income differentialsFactors influencing exchange ratesImpact of real income differenFactors influencing exchange ratesReal income differentialsOne shouldnt conclude tha

11、t a strong currency is an indicator of a strong economy.Real income changes can also reflect other processes, which might lead to rising exportsFor example, the rise in real income is due to a supply-side factor-an improvement in the nations productivity.Factors influencing exchange rFactors influen

12、cing exchange ratesReal interest ratesShort term real interest rate differences influence international capital movementsEasy credit, low short term rates lead to less demand for the currency and depreciationTight credit, high rates lead to greater demand for the currency and appreciationFactors inf

13、luencing exchange rImpact of interest rate differentialsFactors influencing exchange ratesImpact of interest rate differFactors influencing exchange ratesReal interest ratesMost experts in international finance agree that interest-rate differentials are a major determinant of exchange rates in the s

14、hort run.For international investors, it is relative changes in the real interest（實(shí)際利率） that matter.Factors influencing exchange rFactors influencing exchange ratesReal interest ratesNominal interest rate（名義利率）refers to the rate of return on assets that can be earned in a particular country, not adj

15、usted for the rate of inflation.Real interest rate（實(shí)際利率）is the nominal exchange rate adjusted for changes in relative price level.Real interest rate=nominal interest rate-inflation rateFactors influencing exchange rBackBackFactors influencing exchange ratesReal interest ratesCountries that experienc

16、e relatively low real interest rates tend to find their currencies depreciating.Factors influencing exchange rInflation Rates, Purchasing Power Parity, Long-Run Exchange RatesLaw of one priceAn identical good should cost the same in all nations, assuming costless shipping and no barriersTheory: Purs

17、uit of profits and price equalizationSingle price might not apply in practiceBig Mac indexPrimitive and has many flaws but widely understood Serves as an approximation of currency strengthPrice of a Big Mac (Table 12.3)Inflation Rates, Purchasing PoBackBackFactors influencing exchange ratesRelative

18、purchasing power parityWhen applying the purchasing-power-parity concept, most analyst consider a nations overall inflation (deflation) rate measured by the producer price index or consumer price index.Factors influencing exchange rPurchasing Power ParityPurchasing power parity theoryExchange rates

19、are related to differences in the level of prices between two countriesChanges in relative national price levels determine changes in exchange rates over the long runGiven in symbols as:Application of the concept (Table 12.4)Purchasing Power ParityPurchasBackBackImpact of inflation rate differential

20、sFactors influencing exchange ratesImpact of inflation rate diffePurchasing Power ParityLimitations of the theoryOverlooks the fact that exchange-rate movements may be influenced by investment flowsChoosing the appropriate price index Determining the equilibrium period baseGovernment policy interfer

21、encePredictive power most evident in the long runPurchasing power parity: U.S.-United Kingdom (Figure 12.3)ContinuedPurchasing Power ParityLimitatBackBackFactors influencing exchange ratesRelative purchasing power parityEvidence concerning the validity of the purchasing-power-parity theory is mixed.

22、The purchasing-power-parity theory also doesnt appear to hold as well when tests are conducted over relatively short time period.Over a sufficiently long period it is possible that economic forces work to maintain purchasing-power-parity levels.Factors influencing exchange rFactors influencing excha

23、nge ratesOther market fundamentals Bilateral trade relationshipsConsumer TastesInvestment ProfitabilityProduct AvailabilityProductivity ChangesTrade PolicyFactors influencing exchange rMarket Fundaments and Dollars Exchange ValueExchange-Rate DeterminationFactorchangeEffect on Dollars Exchange Value

24、Foreign demand for U.S. exportsDecreaseDepreciationIncreaseAppreciationForeign demand for U.S. assetsDecreaseDepreciationIncreaseAppreciationU.S. demand for foreign exportsDecreaseAppreciationIncreaseDepreciationU.S. demand for foreign assetsDecreaseAppreciationIncreaseDepreciationMarket Fundaments

25、and DollarsMarket Fundaments and Dollars Exchange ValueExchange-Rate DeterminationFactorchangeEffect on Dollars Exchange ValueU.S. price levelDecreaseAppreciationIncreaseDepreciationU.S. interest ratesDecreaseDepreciationIncreaseAppreciationU.S. real incomeDecreaseAppreciationIncreaseDepreciationU.S

26、. ProductivityDecreaseDepreciationIncreaseAppreciationU.S. trade restrictionsDecreaseDepreciationIncreaseAppreciationMarket Fundaments and DollarsFactors influencing exchange ratesMarket expectationsFluctuations in exchange rates are sometimes too large and too sudden to be explained by market funda

27、mental, they are subject to market expectations, that is to say rates can move in anticipation of future changes.Factors influencing exchange rFactors influencing exchange ratesMarket expectationsLike stocks, foreign exchange rate react quickly to news or even rumors that point to future changes aff

28、ecting rates.Factors influencing exchange rMarket expectations and Exchange-Rate FluctuationsUnanticipated rise in the growth of the U.S money supply occurs Market expectations and ExchanFactors influencing exchange ratesMarket expectationsFuture expectations can be self-fulfilling. The exchange rat

29、e is also effected by speculative bubbles（投機(jī)泡沫）, which can start without any real information but can become self sustaining for a while.Factors influencing exchange rFactors influencing exchange ratesMarket expectationsFactorChangeEffect on Dollars Exchange ValueExpected U.S. price levelIncreaseDep

30、reciationDecreaseAppreciationExpected U.S. interest rateIncreaseAppreciationDecreaseDepreciationExpected U.S. trade barriersIncreaseAppreciationDecreaseDepreciationExpected U.S. import demandIncreaseDepreciationDecreaseAppreciationExpected U.S. productivityIncreaseAppreciationDecreaseDepreciationFac

31、tors influencing exchange rFactors influencing exchange ratesInteraction of exchange rate determinantsWhether the home currency will rise or fall against the foreign currency depends on the nature of the international transactions between the two countriesInvestment interest rateInternational trade

32、real income and inflationFactors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationMonetary approach（貨幣分析法） was put forward by J.Frenkel（弗蘭克爾）、M.Mussa（穆薩）et al in 1970s. Monetary approach sees exchange rates as determi

33、ned by the free-market responses to changes in the total demands and supplies of national currencies. Factors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationThey emphasizes the fact that the foreign-exchange markets

34、 is a monetary phenomenon, where monies are traded for monies. Exchange-rate is the relative price between the currencies in two countries, not the relative price between the commodities.(匯率是兩國(guó)貨幣的相對(duì)價(jià)格，而不是兩國(guó)商品的相對(duì)價(jià)格)Factors influencing exchange rFactors influencing exchange ratesThe federal reserve an

35、d the Monetary approach to exchange-rate determinationAssumptions:Aggregate supply curve is vertical (垂直的總供給曲線), which means wage is flexible, price is also flexible and the variations of price wont effect the output.The demand for money is steady（穩(wěn)定的貨幣需求）The theory of PPP is tenable（購(gòu)買力平價(jià)的成立）Factor

36、s influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationThe aggregate demand for money in a nation depends on the level of Real income Prices Interest rates Md=P L (i，Y) Md/P= L (i，Y) Money supplies can be controlled by ce

37、ntral banks.Factors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationWhen in equilibrium : Ms=Md Ms/P= L (i，Y) In PPP theorySo:Factors influencing exchange rFactors influencing exchange ratesThe federal reserve and th

38、e Monetary approach to exchange-rate determinationThe quantity of money supplied is predicted not to influence the amount of output, (real) interest rates, and the aggregate demand of real monetary assets L(i,Y).However, the quantity of money supplied is predicted to make the level of average prices

39、 adjust proportionally.The equilibrium condition Ms/P = L(i,Y) shows that P is predicted to adjust proportionally when Ms adjusts, because L(i,Y) does not change.Factors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinati

40、onPrice is completely flexible. We call it flexible price monetary approach.（彈性價(jià)格貨幣分析法）Factors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationChangeImpactIncrease in money supplyDepreciationDecrease in money supplyA

41、ppreciationIncrease in money demandAppreciationDecrease in money demandDepreciationIt emphasizes that movements in currency values play a primary role in restoring equilibrium between money demand and money supply.Factors influencing exchange rFactors influencing exchange ratesThe federal reserve an

42、d the Monetary approach to exchange-rate determinationShortcomingsIt offers only a partial view of the forces influencing exchange rates, ignoring nonmonetary assets It is controversial that price is completely flexibleIt is based on PPP, so if the PPP is untenable, its creditability will be doubtfu

43、lFactors influencing exchange rFactors influencing exchange ratesThe federal reserve and the Monetary approach to exchange-rate determinationIt is helpful to predict the changes of exchange-rate in the long term.It highlights the importance of monetary policy in influencing exchange rates, and corre

44、ctly warns that excessive monetary expansion leads to currency depreciation. Factors influencing exchange rFactors influencing exchange ratesExchange-rate overshootingThe Overshooting Model or Exchange rate overshooting（匯率超調(diào)）, first established by economist Rudi Dornbusch（多恩布什）in 1976, is referred t

45、o sticky price monetary approach（粘性價(jià)格貨幣分析法）Factors influencing exchange rFactors influencing exchange ratesExchange-rate overshootingOvershooting is an instance of an exchange rates short-run response to a change in market fundamentals is greater than its long-run response.It is an important phenome

46、non because it helps explain why exchange rates depreciate or appreciate so sharply from day to day.Factors influencing exchange rShort, long run equilibrium: overshootingExchange rate marketsShort, long run equilibrium: oFactors influencing exchange ratesExchange-rate overshootingOvershooting can b

47、e explained byThe tendency of elasticity to be smaller in the short run than in the long run.Exchange rates tend to be more flexible than many other prices.Factors influencing exchange r52Factors influencing exchange ratesExchange-rate overshooting52Factors influencing exchangeFactors influencing ex

48、change ratesExchange-rate overshootingThe Overshooting Model or Exchange rate overshooting（匯率超調(diào)）first involved the dynamic adjustments of exchange rate, after that an important branch of exchange rate theory Exchange Rate dynamics （匯率動(dòng)態(tài)學(xué)）was established.Factors influencing exchange rFactors influenc

49、ing exchange ratesFinancial assets as determinants of exchange ratesCapital flows have become more important than trade in determining exchange rates.Only 1 to 2 percent of all foreign-exchange transactions are related to the financing of exports and imports.Decisions to hold foreign or domestic fin

50、ancial assets play a much greater role in the determination of exchange rates than the demand for imports and exports does.Factors influencing exchange rFactors influencing exchange ratesFinancial assets as determinants of exchange ratesThe asset-market approach（資產(chǎn)市場(chǎng)分析法）,or asset portfolio balance a

51、pproach （資產(chǎn)組合平衡法）is a method of determining short-run exchange rates where investors consider two key factors when deciding between domestic and foreign investment-relative levels of interest rates and expected changes in the exchange rate itself over the term of the investment.Factors influencing e

52、xchange rFactors influencing exchange ratesAsset-market ApproachW=M+B+rFThe asset-markets approach assumes that domestic and foreign bonds are not perfect substitutes.Investors balance their portfolios among domestic money, domestic bonds, and foreign-currency bonds.They modify their portfolios as c

53、onditions change.Factors influencing exchange rFactors influencing exchange ratesAsset-market ApproachIn the process of equilibrating the demand for, and supply of financial assets in each country that determinants the exchange rate.Factors influenced the investors portfolioThe holders wealth and ta

54、stesThe level of domestic and foreign interest ratesExpectations of future inflationFactors influencing exchange r國(guó)際貿(mào)易與金融II(雙語)課程國(guó)際經(jīng)濟(jì)學(xué)13Factors influencing exchange ratesAsset-Market ApproachThere is no unified theory of exchange-rate determination based on the asset-markets approach that has proved reliable in forecasting.Rationale:Japanese yen in 1999Euro in 1999Factors influencing exc