代写termpaper：货币贬值改善贸易平衡

代写termpaper：货币贬值改善贸易平衡
Currency Devaluation In Improving Trade Balance

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，在研究中出现了各种各样的观点。要又具有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。本文的重点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

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 a‚¬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] / a‚¬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: 'a，

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