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Thursday, August 20, 2015

A brand new FX world

I used to teach (even this morning, 8/20/2015) that a devaluation was a good way for countries to increase their exports and get out of debt...

I guess it is still true, however... (a big one)...

Our supply chains are now so interconnected that depend on a group of currencies. Only a portion of any good is made in one country. Much of many products is simply transportation.

In this line, a new study from the World Bank concludes:

"Intuitively, as countries are
more integrated in global production processes, a currency
depreciation only improves the competitiveness of a fraction
of the value of final goods exports. "

The authors claim that depreciations are only 1/2 as effective as they were 20 years ago.

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