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

Former White House chief economic advisor Nouriel Roubini discusses the major limits of central-bank-driven fiscal deficits.

Rose Prince

2019-12-25 19:46:00 Wednesday ET

Former White House chief economic advisor Nouriel Roubini discusses the major limits of central-bank-driven fiscal deficits.

Former White House chief economic advisor Nouriel Roubini discusses the major limits of central-bank-driven fiscal deficits. The International Monetary Fund

+See More

Income and wealth concentration follows the ebbs and flows of the business cycle in America.

Amy Hamilton

2019-04-23 19:45:00 Tuesday ET

Income and wealth concentration follows the ebbs and flows of the business cycle in America.

Income and wealth concentration follows the ebbs and flows of the business cycle in America. Economic inequality not only grows among people, but it also gr

+See More

President Trump's current trade policies appear like the Reagan administration's protectionist trade policies back in the 1980s.

Apple Boston

2018-07-03 11:42:00 Tuesday ET

President Trump's current trade policies appear like the Reagan administration's protectionist trade policies back in the 1980s.

President Trump's current trade policies appear like the Reagan administration's protectionist trade policies back in the 1980s. In comparison to th

+See More

Is higher stock market concentration good or bad for Corporate America?

Laura Hermes

2025-03-03 04:11:06 Monday ET

Is higher stock market concentration good or bad for Corporate America?

Is higher stock market concentration good or bad for Corporate America? In recent years, S&P 500 stock market returns exhibit spectacular concentrati

+See More

CEO overconfidence and corporate performance

Laura Hermes

2022-11-05 11:32:00 Saturday ET

CEO overconfidence and corporate performance

CEO overconfidence and corporate performance Malmendier and Tate (JFE 2008, JF 2005) argue that overconfident CEOs are more likely to initiate mergers an

+See More

The new world order of trade helps accomplish non-economic policy goals such as national security and technological dominance.

Amy Hamilton

2024-01-31 14:33:00 Wednesday ET

The new world order of trade helps accomplish non-economic policy goals such as national security and technological dominance.

The new world order of trade helps accomplish non-economic policy goals such as national security and technological dominance. To the extent that freer

+See More