中文曼昆宏观经济学第七版讲义.ppt

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1、The Open Economy,5,2 0 1 0 U P D A T E,In this chapter,you will learn:,accounting identities for the open economythe small open economy modelwhat makes it“small”how the trade balance and exchange rate are determinedhow policies affect trade balance&exchange rate,Imports and exports(%of GDP),2008,In

2、an open economy,spending need not equal outputsaving need not equal investment,Preliminaries,EX=exports=foreign spending on domestic goodsIM=imports=C f+I f+G f=spending on foreign goodsNX=net exports(a.k.a.the“trade balance”)=EX IM,superscripts:d=spending on domestic goodsf=spending on foreign good

3、s,GDP=expenditure on domestically produced g&s,The national income identity in an open economy,Y=C+I+G+NX,or,NX=Y(C+I+G),Trade surpluses and deficits,trade surplus:output spending and exports imports Size of the trade surplus=NXtrade deficit:spending output and imports exports Size of the trade defi

4、cit=NX,NX=EX IM=Y(C+I+G),International capital flows,Net capital outflow=S I=net outflow of“loanable funds”=net purchases of foreign assets the countrys purchases of foreign assets minus foreign purchases of domestic assetsWhen S I,country is a net lenderWhen S I,country is a net borrower,The link b

5、etween trade&cap.flows,NX=Y(C+I+G)implies NX=(Y C G)I=S Itrade balance=net capital outflow,Thus,a country with a trade deficit(NX 0)is a net borrower(S I).,Saving,investment,and the trade balance(percent of GDP)1960-2010,U.S.:“The worlds largest debtor nation”,Every year since 1980s:huge trade defic

6、its and net capital inflows, borrowing from abroadAs of 12/31/2009:U.S.residents owned$18.4 trillion worth of foreign assetsForeigners owned$21.1 trillion worth of U.S.assetsU.S.net indebtedness to rest of the world:$2.7 trillion-higher than any other country,hence U.S.is the“worlds largest debtor n

7、ation”,Saving and investment in a small open economy,An open-economy version of the loanable funds model from Chapter 3.Includes many of the same elements:production functionconsumption functioninvestment functionexogenous policy variables,National saving:The supply of loanable funds,As in Chapter 3

8、,national saving does not depend on the interest rate,Assumptions about capital flows,a.domestic&foreign bonds are perfect substitutes(same risk,maturity,etc.)b.perfect capital mobility:no restrictions on international trade in assetsc.economy is small:cannot affect the world interest rate,denoted r

9、*,a&b imply r=r*c implies r*is exogenous,Investment:The demand for loanable funds,Investment is still a downward-sloping function of the interest rate,r*,but the exogenous world interest rate,determines the countrys level of investment.,I(r*),If the economy were closed,the interest rate would adjust

10、 to equate investment and saving:,But in a small open economy,the exogenous world interest rate determines investment,and the difference between saving and investment determines net capital outflow and net exports,NX,Next,three experiments:,1.Fiscal policy at home2.Fiscal policy abroad3.An increase

11、in investment demand(exercise),1.Fiscal policy at home,An increase in G or decrease in T reduces saving.,NX and the federal budget deficit(%of GDP),1965-2009,-,6%,-,4%,-,2%,0%,2%,-,4%,-,2%,0%,2%,4%,6%,8%,1965,1970,1975,1980,1985,1990,1995,2000,2005,2010,2.Fiscal policy abroad,Expansionary fiscal pol

12、icy abroad raises the world interest rate.,Results:,NOW YOU TRY:3.An increase in investment demand,Use the model to determine the impact of an increase in investment demand on NX,S,I,and net capital outflow.,ANSWERS:3.An increase in investment demand,I 0,S=0,net capital outflow and NX fall by the am

13、ount I,The nominal exchange rate,e=nominal exchange rate,the relative price of domestic currency in terms of foreign currency(e.g.Yen per Dollar),A few exchange rates,as of 11/01/2010,The real exchange rate,=real exchange rate,the relative price of domestic goods in terms of foreign goods(e.g.Japane

14、se Big Macs per U.S.Big Mac),Understanding the units of,one good:Big Macprice in Japan:P*=200 Yenprice in USA:P=$2.50nominal exchange rate e=120 Yen/$,To buy a U.S.Big Mac,someone from Japan would have to pay an amount that could buy 1.5 Japanese Big Macs.,McZample,in the real world&our model,In the

15、 real world:We can think of as the relative price of a basket of domestic goods in terms of a basket of foreign goodsIn our macro model:Theres just one good,“output.”So is the relative price of one countrys output in terms of the other countrys output,How NX depends on,U.S.goods become more expensiv

16、e relative to foreign goods EX,IM NX,U.S.net exports and the real exchange rate,1973-2009,NX,(%of GDP),Index,(March 1973=100),0,20,40,60,80,100,120,140,-,8%,-,6%,-,4%,-,2%,0%,2%,4%,1970,1975,1980,1985,1990,1995,2000,2005,2010,The net exports function,The net exports function reflects this inverse re

17、lationship between NX and:NX=NX(),The NX curve for the U.S.,The NX curve for the U.S.,How is determined,The accounting identity says NX=S IWe saw earlier how S I is determined:S depends on domestic factors(output,fiscal policy variables,etc)I is determined by the world interest rate r*So,must adjust

18、 to ensure,How is determined,Neither S nor I depend on,so the net capital outflow curve is vertical.,adjusts to equate NX with net capital outflow,S-I.,1,NX 1,Interpretation:supply and demand in the foreign exchange market,demand:Foreigners need dollars to buy U.S.net exports.,supply:Net capital out

19、flow(S-I)is the supply of dollars to be invested abroad.,1,NX 1,Next,four experiments:,1.Fiscal policy at home2.Fiscal policy abroad3.An increase in investment demand(exercise)4.Trade policy to restrict imports,1.Fiscal policy at home,A fiscal expansion reduces national saving,net capital outflow,an

20、d the supply of dollars in the foreign exchange market,causing the real exchange rate to rise and NX to fall.,2.Fiscal policy abroad,An increase in r*reduces investment,increasing net capital outflow and the supply of dollars in the foreign exchange market,causing the real exchange rate to fall and

21、NX to rise.,NOW YOU TRY:3.Increase in investment demand,Determine the impact of an increase in investment demand on net exports,net capital outflow,and the real exchange rate,ANSWERS:3.Increase in investment demand,An increase in investment reduces net capital outflow and the supply of dollars in th

22、e foreign exchange market,causing the real exchange rate to rise and NX to fall.,4.Trade policy to restrict imports,At any given value of,an import quota IM NX demand for dollars shifts right,Trade policy doesnt affect S or I,so capital flows and the supply of dollars remain fixed.,4.Trade policy to

23、 restrict imports,Results:0(demand increase)NX=0(supply fixed)IM 0(policy)EX 0(rise in),The determinants of the nominal exchange rate,Start with the expression for the real exchange rate:,Solve for the nominal exchange rate:,The determinants of the nominal exchange rate,So e depends on the real exch

24、ange rate and the price levels at home and abroadand we know how each of them is determined:,The determinants of the nominal exchange rate,Rewrite this equation in growth rates(see“arithmetic tricks for working with percentage changes,”Chap 2):,For a given value of,the growth rate of e equals the di

25、fference between foreign and domestic inflation rates.,Inflation differentials and nominal exchange rates for a cross section of countries,%change in nominal exchange rate,inflation differential,Iceland,Mexico,U.K.,S.Korea,Japan,Singapore,Canada,Australia,S.Africa,Pakistan,Purchasing Power Parity(PP

26、P),Two definitions:A doctrine that states that goods must sell at the same(currency-adjusted)price in all countries.The nominal exchange rate adjusts to equalize the cost of a basket of goods across countries.Reasoning:arbitrage,the law of one price,Purchasing Power Parity(PPP),PPP:e P=P*,Solve for

27、e:e=P*/P PPP implies that the nominal exchange rate between two countries equals the ratio of the countries price levels.,Purchasing Power Parity(PPP),If e=P*/P,then,and the NX curve is horizontal:,Under PPP,changes in(S I)have no impact on or e.,Does PPP hold in the real world?,No,for two reasons:1

28、.International arbitrage not possible.nontraded goodstransportation costs2.Different countries goods not perfect substitutes.Yet,PPP is a useful theory:Its simple&intuitive.In the real world,nominal exchange rates tend toward their PPP values over the long run.,Data:decade averages;all except r and

29、are expressed as a percent of GDP;is a trade-weighted index.,CASE STUDY:The Reagan deficits revisited,The U.S.as a large open economy,So far,weve learned long-run models for two extreme cases:closed economy(chap.3)small open economy(chap.5)A large open economy like the U.S.fallsbetween these two ext

30、remes.The results from large open economy analysis are a mixture of the results for the closed&small open economy cases.For example,A fiscal expansion in three models,falls,but not as much as in small open economy,falls,no change,falls,but not as much as in closed economy,nochange,falls,rises,but no

31、t as much as in closed economy,nochange,rises,A fiscal expansion causes national saving to fall.The effects of this depend on openness&size:,Chapter Summary,Net exports-the difference between exports and importsa countrys output(Y)and its spending(C+I+G)Net capital outflow equalspurchases of foreign

32、 assets minus foreign purchases of the countrys assetsthe difference between saving and investment,Chapter Summary,National income accounts identities:Y=C+I+G+NXtrade balance NX=S-I net capital outflowImpact of policies on NX:NX increases if policy causes S to rise or I to fallNX does not change if

33、policy affects neither S nor I.Example:trade policy,Chapter Summary,Exchange ratesnominal:the price of a countrys currency in terms of another countrys currencyreal:the price of a countrys goods in terms of another countrys goodsThe real exchange rate equals the nominal rate times the ratio of price

34、s of the two countries.,Chapter Summary,How the real exchange rate is determinedNX depends negatively on the real exchange rate,other things equalThe real exchange rate adjusts to equate NX with net capital outflow,Chapter Summary,How the nominal exchange rate is determinede equals the real exchange rate times the countrys price level relative to the foreign price level.For a given value of the real exchange rate,the percentage change in the nominal exchange rate equals the difference between the foreign&domestic inflation rates.,