宏观经济学英文课件：ch5 The Open Economy.ppt
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MACROECONOMICS© 2010 Worth Publishers, all rights reserved© 2010 Worth Publishers, all rights reservedS E V E N T H E D I T I O NPowerPoint® Slides by Ron CronovichN. Gregory MankiwC H A P T E RThe Open Economy5 In this chapter, you will learn:§accounting identities for the open economy§the small open economy model§what makes it “small”§how the trade balance and exchange rate are determined§how policies affect trade balance & exchange rate Imports and exports (% of GDP), 2007CanadaFrance GermanyItalyJapanU.K.U.S.0%5%10%15%20%25%30%35%40%45%ImportsExports 3CHAPTER 5 The Open EconomyIn an open economy,§spending need not equal output§saving need not equal investment 4CHAPTER 5 The Open EconomyPreliminariesEX = 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 – IMsuperscripts:d = spending on domestic goodsf = spending on foreign goods 5CHAPTER 5 The Open EconomyGDP = expenditure on domestically produced g & s 6CHAPTER 5 The Open EconomyThe national income identity in an open economyY = C + I + G + NXor, NX = Y – (C + I + G )net exportsdomestic spendingoutput 7CHAPTER 5 The Open EconomyTrade surpluses and deficits§trade surplus: output > spending and exports > imports Size of the trade surplus = NX§trade deficit: spending > output and imports > exports Size of the trade deficit = –NXNX = EX – IM = Y – (C + I + G ) 8CHAPTER 5 The Open EconomyInternational capital flows§Net capital outflow=S – I= net outflow of “loanable funds”= net purchases of foreign assets the country’s purchases of foreign assets minus foreign purchases of domestic assets§When S > I, country is a net lender§When S < I, country is a net borrower 9CHAPTER 5 The Open EconomyThe link between trade & cap. flowsNX = Y – (C + I + G )implies NX = (Y – C – G ) – I = S – Itrade balance = net capital outflowThus, a country with a trade deficit (NX < 0) is a net borrower (S < I ). Saving, investment, and the trade balance (percent of GDP) 1960-2007196019651970197519801985199019952000200520106%8%10%12%14%16%18%20%22%24%-6%-4%-2%0%2%4%6%8%trade balance (right scale)savinginvestment 11CHAPTER 5 The Open EconomyU.S.: “The world’s largest debtor nation”§Every year since 1980s: huge trade deficits and net capital inflows, i.e. net borrowing from abroad§As of 12/31/2008:§U.S. residents owned $19.9 trillion worth of foreign assets§Foreigners owned $23.4 trillion worth of U.S. assets§U.S. net indebtedness to rest of the world:$3.5 trillion--higher than any other country, hence U.S. is the “world’s largest debtor nation” 12CHAPTER 5 The Open EconomySaving 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 function§consumption function§investment function§exogenous policy variables 13CHAPTER 5 The Open EconomyNational saving: The supply of loanable fundsrS, IAs in Chapter 3,national saving does not depend on the interest rate 14CHAPTER 5 The Open EconomyAssumptions about capital flowsa.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*a & b imply r = r*c implies r* is exogenous 15CHAPTER 5 The Open EconomyInvestment: The demand for loanable fundsInvestment is still a downward-sloping function of the interest rate,r *but the exogenous world interest rate……determines the country’s level of investment.I (r* )rS, II (r ) 16CHAPTER 5 The Open EconomyIf the economy were closed…rS, II (r )rc…the interest rate would adjust to equate investment and saving: 17CHAPTER 5 The Open EconomyBut in a small open economy…rS, II (r )rcr*I 1the exogenous world interest rate determines investment……and the difference between saving and investment determines net capital outflow and net exportsNX 18CHAPTER 5 The Open EconomyNext, three experiments:1.Fiscal policy at home2.Fiscal policy abroad3. An increase in investment demand(exercise) 19CHAPTER 5 The Open Economy1. Fiscal policy at homerS, II (r )I 1An increase in G or decrease in T reduces saving.NX1NX2Results: NX and the federal budget deficit (% of GDP), 1965-2009-6%-4%-2%0%2%-4%-2%0%2%4%6%8%1965197019751980198519901995200020052010Net exports (right scale)Budget deficit (left scale) 21CHAPTER 5 The Open Economy2. Fiscal policy abroadrS, II (r )Expansionary fiscal policy abroad raises the world interest rate.NX1NX2Results: NOW YOU TRY: 3. An increase in investment demandrS, II (r )1Use the model to determine the impact of an increase in investment demand on NX, S, I, and net capital outflow.NX1I 1S ANSWERS: 3. An increase in investment demandrS, II (r )1 I > 0, S = 0,net capital outflow and NX fall by the amount I NX2NX1I 1I 2SI (r )2 24CHAPTER 5 The Open EconomyThe nominal exchange ratee = 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 6/24/2009countryexchange rateEuro area0.72 Euro/$Indonesia10,337 Rupiahs/$Japan95.9 Yen/$Mexico13.3 Pesos/$Russia31.4 Rubles/$South Africa8.1 Rand/$U.K.0.61 Pounds/$ 26CHAPTER 5 The Open EconomyThe real exchange rate = real exchange rate, the relative price of domestic goods in terms of foreign goods (e.g. Japanese Big Macs per U.S. Big Mac)the lowercase Greek letter epsilonε 27CHAPTER 5 The Open EconomyUnderstanding the units of εε 28CHAPTER 5 The Open Economy§one good: Big Mac§price in Japan: P* = 200 Yen§price in USA: P = $2.50§nominal exchange rate e = 120 Yen/$To buy a U.S. Big Mac, someone from Japan would have to pay an amount that could buy 1.5 Japanese Big Macs.ε~ McZample ~ 29CHAPTER 5 The Open Economyε in the real world & our model§In the real world:We can think of ε as the relative price of a basket of domestic goods in terms of a basket of foreign goods§In our macro model:There’s just one good, “output.”So ε is the relative price of one country’s output in terms of the other country’s output 30CHAPTER 5 The Open EconomyHow NX depends on ε ε U.S. goods become more expensive relative to foreign goods EX, IM NX U.S. net exports and the real exchange rate, 1973-2009NX (% of GDP)Index (March 1973 = 100)020406080100120140-8%-6%-4%-2%0%2%4%197019751980198519901995200020052010Net exports(left scale)Trade-weighted real exchange rate index 32CHAPTER 5 The Open EconomyThe net exports function§The net exports function reflects this inverse relationship between NX and ε :NX = NX(ε ) 33CHAPTER 5 The Open EconomyThe NX curve for the U.S.0NXεNX (ε)ε1When ε is relatively low, U.S. goods are relatively inexpensiveNX(ε1)so U.S. net exports will be high 34CHAPTER 5 The Open EconomyThe NX curve for the U.S.0NXεNX (ε)ε2At high enough values of ε, U.S. goods become so expensive that NX(ε2)we export less than we import 35CHAPTER 5 The Open EconomyHow ε is determined§The accounting identity says NX = S – I§We 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, ε must adjust to ensure 36CHAPTER 5 The Open EconomyHow ε is determinedNeither S nor I depend on ε, so the net capital outflow curve is vertical. εNXNX(ε )ε adjusts to equate NX with net capital outflow, S - I.ε 1NX 1 37CHAPTER 5 The Open EconomyInterpretation: supply and demand in the foreign exchange marketdemand: Foreigners need dollars to buy U.S. net exports.εNXNX(ε )supply: Net capital outflow (S - I ) is the supply of dollars to be invested abroad.ε 1NX 1 38CHAPTER 5 The Open EconomyNext, four experiments:1. Fiscal policy at home2. Fiscal policy abroad3. An increase in investment demand(exercise)4. Trade policy to restrict imports 39CHAPTER 5 The Open Economy1. Fiscal policy at homeA fiscal expansion reduces national saving, net capital outflow, and the supply of dollars in the foreign exchange market… …causing the real exchange rate to rise and NX to fall.εNXNX(ε )ε 1NX 1NX 2ε 2 40CHAPTER 5 The Open Economy2. Fiscal policy abroadAn 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 NX to rise.εNXNX(ε )NX 1ε 1ε 2NX 2 NOW YOU TRY: 3. Increase in investment demandNX(ε )ε 1NX 1εNXDetermine the impact of an increase in investment demand on net exports, net capital outflow, and the real exchange rate ANSWERS: 3. Increase in investment demandAn increase in investment reduces net capital outflow and the supply of dollars in the foreign exchange market… NX(ε )ε 1NX 1NX 2ε 2εNX…causing the real exchange rate to rise and NX to fall. 43CHAPTER 5 The Open Economy4. Trade policy to restrict importsεNXNX (ε )1NX1ε 1NX (ε )2At any given value of ε, an import quota IM NX demand for dollars shifts rightTrade policy doesn’t affect S or I , so capital flows and the supply of dollars remain fixed.ε 2 44CHAPTER 5 The Open Economy4. Trade policy to restrict importsεNXNX (ε )1NX1ε 1NX (ε )2Results: ε > 0 (demand increase) NX = 0(supply fixed) IM < 0 (policy) EX < 0(rise in ε )ε 2 45CHAPTER 5 The Open EconomyThe determinants of the nominal exchange rate§Start with the expression for the real exchange rate:§Solve for the nominal exchange rate: 46CHAPTER 5 The Open EconomyThe determinants of the nominal exchange rate§So e depends on the real exchange rate and the price levels at home and abroad……and we know how each of them is determined: 47CHAPTER 5 The Open EconomyThe 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 ε, the growth rate of e equals the difference between foreign and domestic inflation rates. Inflation differentials and nominal exchange rates for a cross section of countries-10% -5%0%5%10% 15% 20% 25% 30%0%5%10%15%20%25%30%-5%% change in nominal exchange rateinflation differentialIcelandMexicoU.K.S. KoreaJapanSingaporeCanadaAustraliaS. AfricaPakistan 49CHAPTER 5 The Open EconomyPurchasing Power Parity (PPP)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 50CHAPTER 5 The Open EconomyPurchasing Power Parity (PPP)§PPP: e P = P* Cost of a basket of domestic goods, in foreign currency.Cost of a basket of domestic goods, in domestic currency.Cost of a basket of foreign goods, in foreign currency.§Solve for e : e = P*/ P §PPP implies that the nominal exchange rate between two countries equals the ratio of the countries’ price levels. 51CHAPTER 5 The Open EconomyPurchasing Power Parity (PPP)§If e = P*/P, then and the NX curve is horizontal:εNXNXε = 1S - IUnder PPP, changes in (S – I ) have no impact on ε or e. 52CHAPTER 5 The Open EconomyDoes PPP hold in the real world?No, for two reasons:1.International arbitrage not possible.§nontraded goods§transportation costs2.Different countries’ goods not perfect substitutes.Yet, PPP is a useful theory:§It’s simple & intuitive.§In the real world, nominal exchange rates tend toward their PPP values over the long run. no changeno change no changeno change 129.4-2.019.46.317.43.9115.1-0.319.91.119.62.2closed economysmall open economyactual changeεNXIrSG – T1980s1970sData: decade averages; all except r and ε are expressed as a percent of GDP; ε is a trade-weighted index. CASE STUDY: The Reagan deficits revisited 54CHAPTER 5 The Open EconomyThe U.S. as a large open economy§So far, we’ve 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 extremes. §The results from large open economy analysis are a mixture of the results for the closed & small open economy cases. §For example… 55CHAPTER 5 The Open EconomyNXIrlarge open economysmall open economyclosed economyA fiscal expansion in three modelsfalls, but not as much as in small open economyfallsno changefalls, but not as much as in closed economynochangefallsrises, but not as much as in closed economynochangerisesA fiscal expansion causes national saving to fall.The effects of this depend on openness & size: Chapter Summary§Net exports--the difference between §exports and imports§a country’s output (Y ) and its spending (C + I + G)§Net capital outflow equals§purchases of foreign assets minus foreign purchases of the country’s assets§the difference between saving and investment Chapter Summary§National income accounts identities:§Y = C + I + G + NX§trade balance NX = S - - I net capital outflow§Impact of policies on NX :§NX increases if policy causes S to rise or I to fall§NX does not change if policy affects neither S nor I. Example: trade policy Chapter Summary§Exchange rates§nominal: the price of a country’s currency in terms of another country’s currency§real: the price of a country’s goods in terms of another country’s goods§The real exchange rate equals the nominal rate times the ratio of prices of the two countries. Chapter Summary§How the real exchange rate is determined§NX depends negatively on the real exchange rate, other things equal§The real exchange rate adjusts to equate NX with net capital outflow Chapter Summary§How the nominal exchange rate is determined§e equals the real exchange rate times the country’s 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. 。
