IMF chief economist Gita Gopinath indicates that competitive currency devaluation may be an ineffective solution to improving export prospects.

Fiona Sydney

2019-10-09 16:46:00 Wed ET

IMF chief economist Gita Gopinath indicates that competitive currency devaluation may be an ineffective solution to improving export prospects. In the form of gradual interest rate cuts, Chinese expansionary monetary policy decisions help stimulate domestic demand for consumption goods, services, and capital investments.

However, this monetary expansion may inevitably weaken the Chinese renminbi against the U.S. dollar and other core OECD currencies. This competitive currency devaluation renders Chinese exports more affordable. Meanwhile, this currency devaluation reduces global demand for more expensive Chinese imports. In the broader context of international trade, nevertheless, the recent empirical evidence shows that each 10% currency depreciation improves the trade balance by only 0.3% of real GDP economic output ceteris paribus. This evidence remains robust after the econometrician takes into account multi-year exchange rate fluctuations in response to interest rate cuts and other expansionary monetary policy decisions.

In light of these robust results, monetary expansion alone is unlikely to cause the large and persistent currency devaluation that the central bank needs to stimulate economic growth, employment, and capital accumulation. This economic insight further applies to the recent dovish interest rate cuts that the U.S. Federal Reserve institutes in response to a vocal president.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

Donald Trump defies the odds to become the new U.S. president.

John Fourier

2016-11-08 00:00:00 Tuesday ET

Donald Trump defies the odds to become the new U.S. president.

Donald Trump defies the odds to become the new U.S. president. He wants to make America great again. He seeks to repeal Obamacare. He has zero tole

+See More

American unemployment declines to the 50-year historical low level of 3.5% with moderate job growth.

Chanel Holden

2019-11-19 09:33:00 Tuesday ET

American unemployment declines to the 50-year historical low level of 3.5% with moderate job growth.

American unemployment declines to the 50-year historical low level of 3.5% with moderate job growth. Despite a sharp slowdown in U.S. services and utilities

+See More

OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.

Monica McNeil

2019-04-01 08:28:00 Monday ET

OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.

OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes. OraSure extracts core genetic information from microbiome s

+See More

Thomas Piketty connects the dots between economic growth and inequality worldwide with long-term global empirical evidence.

Chanel Holden

2023-05-28 10:24:00 Sunday ET

Thomas Piketty connects the dots between economic growth and inequality worldwide with long-term global empirical evidence.

Thomas Piketty connects the dots between economic growth and inequality worldwide with long-term global empirical evidence. Thomas Piketty (2017) &nbs

+See More

The world seeks to reduce medicine prices and other health care costs to better regulate big pharma.

Daisy Harvey

2019-06-07 04:02:05 Friday ET

The world seeks to reduce medicine prices and other health care costs to better regulate big pharma.

The world seeks to reduce medicine prices and other health care costs to better regulate big pharma. Nowadays the Trump administration requires pharmaceutic

+See More

Climate change and ESG woke capitalism

Dan Rochefort

2022-11-30 09:26:00 Wednesday ET

Climate change and ESG woke capitalism

Climate change and ESG woke capitalism In recent times, the Biden administration has signed into law a $375 billion program to better balance the economi

+See More