1、1International Economics 国际经济学International EconomicsBy Robert J.Carbaugh13th EditionChapter 4:Mechanisms of International AdjustmentAdjustment MechanismsnAdjustment mechanism nWorks for the return to equilibrium after the initial equilibrium has been disruptednCurrent-account adjustmentnAutomatic a
2、djustmentnDiscretionary government policiesnAutomatic adjustment of the current-accountnUnder a fixed exchange-rate systemnAdjustment variables:prices and income3Balance of payments adjustmentsSchools of thought on adjustmentnClassical approach(1800s-early 1900s)nCentered on gold standardnEmphasized
3、 role of prices and interest ratesnKeynesian approach(1930s onward)nEmphasized income changes affecting adjustmentnMonetarist approach(1960s-,Chicago school)nFocus on role of money in changes and adjustmentBalance of payments adjustmentsPrice adjustmentnThe original theory of current-account adjustm
4、ent is credited to David Hume.nArose from concern with the prevailing mercantilist viewnA nations current account tends to move toward equilibrium automatically.nPrice levels is the main factors.Price AdjustmentsnGold standard,late 1800s to early 1900snConditions for each member nationnMoney supply=
5、gold or paper money backed by goldnOfficial price of gold defined in terms of national currencynBuy and sell gold at that pricenFree import and export of gold nMoney supply-directly tied to current account6Price AdjustmentsnQuantity theory of moneynEssence of the classical price-adjustment mechanism
6、nEquation of exchange:MV=PQ nM money supplynV velocity of moneynP-average price at which each of the final goods is soldnQ physical volume of all final goods produced 7Price AdjustmentsnMV=PQ identitynTotal monetary expenditures on final goods=monetary value of the final goods soldnAmount spent on f
7、inal goods=amount received from selling them8Price AdjustmentsnClassical economists nAssumptionsnQ is fixed at the full employment level in the long termnV was constantnA change in M must induce a direct and proportionate change in P9Balance of payments adjustmentsBalance-of-Payments AdjustmentnDefi
8、cit nationsnWould be losing gold,therefore shrinking their money supply and causing prices to fallnLower prices would make their exports more competitive and lessen demand for imports,restoring equilibriumnSurplus nationsnWould be gaining gold,increasing money supply and price levelnHigher prices wo
9、uld cut exports and encourage imports until the surplus was eliminatedBalance of payments adjustmentsBalance-of-Payments AdjustmentPrice AdjustmentsnCriticisms against the price-adjustment mechanismnClassical linkage between changes in a nations gold supply and changes in its money supply no longer
10、holdsnFull employment doesnt always exist nPrices and wages are inflexible in a downward directionnStability and predictability of V-questioned12Financial Flows and Interest-Rate DifferentialsnFactors affecting a nations capital and financial accountnInterest-rate fluctuations in domestic and foreig
11、n marketsnInvestment profitabilitynNational tax policiesnPolitical stability13Balance of payments adjustmentsnIn the classical approach,another channel through which a BOP disequilibrium is corrected is through adjustments in the short-term interest rates.nThis factor,was not the central focus of th
12、e classical approach to BOP adjustment because financial markets were not advanced during this time.Interest rate adjustmentBalance of payments adjustmentsnInflows of gold expand the money supply,causing short-term interest rates to fall;outflows cause rates to risenInvestors in surplus nations woul
13、d send gold abroad in search of higher rates;deficit nations would receive gold from abroad for investment,restoring equilibriumInterest rate adjustmentFinancial Flows and Interest-Rate DifferentialsnInterest-rate differentials nMost important factor that causes financial assets to move across natio
14、nal borders nHypothetical capital and financial account schedules for the United StatesnAssumes that interest-rate differentials are the basic determinant of financial flowsnDiscouraging financial flowsnInterest equalization taxnForeign-credit-restraint programInterest-rate differentials between the
15、 United States and the rest of the world induce movements along the U.S.capital and financial account schedule.Relatively high(low)U.S.interest rates trigger net financial inflows(outflows)and an upward(downward)movement along the capital and financial account schedule.The schedule shifts upward/dow
16、nward in response to changes in noninterest rate determinants such as investment profitability,tax policies,and political stability.17Capital and financial account schedule for the U.S.FIGURE 4.1Income AdjustmentsnIncome adjustment mechanismnJohn Maynard Keynes,1930snFocus on automatic changes in in
17、come to bring about adjustment in a nations current accountnUnder fixed exchange ratesnInfluence of income changes in nations with current-account surpluses and deficits would help restore equilibrium automatically18Income AdjustmentsnIncome adjustment mechanismnUnder fixed exchange ratesnPersistent
18、 current-account surplusnRising income-Increasing importsnCurrent-account deficit nFall in income-Declining importsnEffects of income changes on import levels will reverse the disequilibrium in the current account19Balance of payments adjustmentsnIn the Keynesian Model：national income:Y=C+S total ex
19、penditure:Y=C+I Y=C+S=C+InThe basic equilibrium condition can thus be stated as S=I or S-I=0Income determination in a closed economyBalance of payments adjustmentsIncome determination in a closed economyBalance of payments adjustmentsIncome determination in a closed economynExamples:Given C=100+0.8Y
20、 and autonomous investment I=100,determine the equilibrium level of national income.nY=C+S S=Y-C I=SnY-100-0.8Y=100 Y=1000Balance of payments adjustmentsnMultiplier process(乘数过程):Y=k I where k represents multipliernI=S=s Y where s represents the marginal propensity to save nY=(1/s)IIncome determinat
21、ion in a closed economyBalance of payments adjustmentsExamples:Given C=100+0.8Y and autonomous investment increases from I=100 to I=200,determine the new equilibrium level of national income.Y=(1/s)I=(1/0.2)*100=500Y=1000+500=1500Income determination in a closed economyBalance of payments adjustment
22、snThe condition for equilibrium income:S+M=I+X S-I=X-MnM=m Y where m represents the marginal propensity to importIncome determination in a open economyBalance of payments adjustmentsnForeign-trade multiplier(对外贸易乘数）S+M=I+X S=s Y M=mY (s+m)Y=I+X Income determination in a open economy1()YIsmIncome Adj
23、ustmentsnThe foreign repercussion effectnIncome adjustment mechanismnInclude the impact that changes in domestic expenditures and income levels have on foreign economiesnBoth the rise in income of the surplus nation and the fall in income of the deficit nation are dampened29Income AdjustmentsnImport
24、ance of the foreign repercussion effectnDepends on the economic size of a countrynA small nation that increases its imports from a large nationnLittle impact on the large nations income levelnMajor trading nationsnSignificant foreign repercussion effect30Disadvantages of Automatic Adjustment Mechani
25、smsnAn efficient adjustment mechanism nRequires central bankers to forgo their use of monetary policy nTo promote the goal of full employment without inflationnEach nation must be willing to accept inflation or recession nWhen current-account adjustment requires it31Monetary AdjustmentsnMonetary app
26、roach to balance of paymentsnBalance of payments-affected by discrepancies between nThe amount of money people desire to hold nThe amount supplied by the central banknExcess demand for money-fulfilled by inflows of money from another countrynExcess supply of money-eliminated by outflows of money to
27、another country32Balance of payments adjustmentsnDemand for money is:Md=PL(Y,i)nDirectly related to income and pricesnInversely related to interest ratesnSupply of money has two components:nDomestic component-credit created by national government(D)nInternational component-foreign exchange reserves(
28、F)nMs=m(D+F)m:money multiplier nWhen m=1,Ms=D+FPayments Imbalances Under Fixed Exchange RatesBalance of payments adjustmentsnWhen in a equilibrium Md=Ms=D+FnF=Md-DnPayments deficits are the result of an excess supply of money at homenExcess supply of money encourages imports,which results in foreign
29、 exchange reserves flowing overseas and reducing the money supplyPayments Imbalances Under Fixed Exchange RatesBalance of payments adjustmentsPayments Imbalances Under Fixed Exchange RatesChangeImpactIncrease in money supplyDeficitDecrease in money supplySurplusIncrease in money demandSurplusDecreas
30、e in money demandDeficitBalance of payments adjustmentsnNote:the BOP surplus or deficit is temporary and self-correcting automatically in the long-run.nThat is after the excess demand for money or the excess supply of money is eliminated through an inflow of funds or out flow of funds,the BOP surplu
31、s or deficit is corrected.Payments Imbalances Under Fixed Exchange RatesBalance of payments adjustmentsnSupply increases(decreases)Bop deficit(surplus)international reserve outflow(inflow)money market equilibrium Bop equilibriumPayments Imbalances Under Fixed Exchange RatesBalance of payments adjust
32、mentsn(1)国际收支是一种货币现象;(2)国际收支逆差，实际上就是一国国内的名义货币供应量(D)超过了名义货币需求量。由于货币供应不影响实物产量，在价格不变的情况下，多余的货币就要寻找出路。对个人和企业来讲，就会增加货币支出，以重新调整它们的实际货币余额;对整个国家来讲，实际货币余额的调整便表现为货币外流，即国际收支逆差。Payments Imbalances Under Fixed Exchange RatesBalance of payments adjustmentsn反之，当一国国内的名义货币供应量小于名义货币需求时，在价格不变的情况下，货币供应的缺口就要寻找来源。对个人和企业来
33、讲，就要减少货币支出，以使实际货币余额维持在所希望的水平;对整个国家来说，减少支出维持实际货币余额的过程，便表现为货币内流，国际收支盈余;Payments Imbalances Under Fixed Exchange RatesBalance of payments adjustmentsn(3)国际收支问题，实际上反映的是实际货币余额(货币存量)对名义货币供应量的调整过程。当国内名义货币供应量与实际经济变量(国民收入、产量等)所决定的实际货币余额需求相一致时，国际收支便处于平衡。Payments Imbalances Under Fixed Exchange RatesPolicy Imp
34、licationsnTheory focuses on domestic monetary policy as key to balance of paymentsnPolicies that increase the supply of money relative to the demand will lead to:nA payments deficit nAn outflow of foreign-exchange reservesnA reduction in the domestic money supplynPolicies that increase the demand fo
35、r money relative to the supply will trigger:nA payments surplusnAn inflow of foreign-exchange reservesnAn increase in the domestic money supplyBalance of payments adjustmentsPolicy ImplicationsnNonmonetary policies:nUnnecessary:Disequilibria are self-correcting nIn the short run,such policies may speed up adjustment process nImplications for growthnIf domestic component of the money supply is not raised commensurate with demand:nExcess demand will induce an inflow of funds from abroad and a payments surplusContinuedBalance of payments adjustments
