2012年6月16日星期六

Internal devaluation Why is it useful?

The internal devaluation has become a big problem in the euro area, but this issue remains controversial. Recently published International Monetary Fund (IMF), the Greek letter of intent, which is opposed to the internal devaluation "internal experience and internal devaluation" (pp. 48-49) have been merged. The combined summary of the basic arguments, but the comments that the experience of internal and internal depreciation are flawed. The practical significance of internal devaluation is not the case of nominal depreciation, the implementation of the real effective exchange rate depreciation. To achieve this goal through a variety of ways - lower wages, reduced public spending, as well as a wide range of structural reforms to improve economic efficiency. The IMF first pointed out: "Because of the fixed exchange rate mechanism will adjust the burden of the impact applied to the economic growth, income and employment, so the internal devaluation is almost inevitable with a deep and long recession linked." (IMF2012 p.48) From the cumulative loss of output to the highest value after three and a half, Argentina, Greece, Hong Kong, China, Latvia, the four regions of the cumulative loss of output values ​​can initially prove this theory. Difficult for us to build a more diverse group of countries. First, because of the relatively unaffected by the control of any preconditions, it is almost no empirical value. Second, three and a half for the assessment of a crisis like Argentina, Greece and Latvia the major economic events for the time is too short. We should at least observe the decade, the best two decades, because we are really interested in is the future growth trajectory. Third, the analysis also must be considered before the growth rate. A frequent controversy in Argentina and later long-term performance of the rapid growth the benefits of devaluation, but we must not forget that before the crisis. Before the crisis, Argentina has experienced steady growth, while Latvia has reached a startling prosperity. Therefore, Latvia in the 2000-2011 period the cumulative growth rate of 51%, while only 15 percent of Argentina in the 1993-2003 period (see Figure 1). Figure 1 2001-2011 Latvia and from 1993 to 2003 in Argentina Note: Gross, domestic product: GDP; constant of goods at reasonable price,: constant prices Finally, the Latvian crisis, the International Monetary Fund (IMF) estimates the country's "real output in 2007 more than 9% of potential output, so output needs to shrink. Therefore, for a fair comparison between the two, we should be subtracted from the Latvia's output fell 9 percent, the cumulative output decline from 24% to 15%. Davos (2011) also made the four-point error. IMF letter of intent in the second argument is: "has been confirmed by internal devaluation to restore competitiveness is a difficult task, and very difficult to succeed." (IMF2012, p 48) In this case, the letter of intent does not provide case, this is just because that in itself is suspicious of the statement. In order to achieve more structural reform and cost control, Denmark in 1982, its krone pegged to the deutsche mark, and now what we call internal devaluation, a success. In 1987-1989, the Netherlands do so and has been successful. Early 2000s, Germany has also taken the same measures between 2008 - 2010, all three Baltic countries and Bulgaria to do so. Therefore, contrary to the IMF statement unconfirmed internal devaluation may have been the most successful reforms in the Nordic strategy. Serious crisis has been difficult to deal with different problems. If major adjustments are essential, regardless of address, social costs are real. The IMF's third argument is that: "National experience has shown that internal devaluation in order to be effective, a number of factors is essential. The most important prerequisite is an open economy, the high mobility of the body elements of the economic wage and price flexibility. "(IMF 2012, p 48) but this would be putting the cart before the horse. Higher factor mobility and higher wage and price flexibility is an internal devaluation of Denmark, the Netherlands and Germany to achieve the goal, and proved their success. Fourth, the IMF said: "due to the intensity of the real effective exchange rate (REER) is passed to the States price (the Baltic States, Argentina and Greece), (REER) depreciation only is regular and moderate devaluation." (IMF 2012 , p 49) This view is wrong. From 2008 to 2010 (see Figure 2), all three Baltic countries, the real effective exchange rate (REER) has significantly improved, 18% in Latvia, Lithuania 8%, 5% in Estonia, Argentina and Greece no reformer . Figure 2 2008-2010, real effective exchange rate Note: Index: 2008 = 100 Base: 2008 = 100 Fifth, the IMF believes that the "resource transfer from the non-trade sector to the trade sector need to take a long time, and ongoing technical mismatch and lack of additional investment will hinder the complete redistribution of the elements (the former East Germany, Latvia). "(IMF 2012, 49) This is another defective point of view, because East Germany and can not prove it. Two decades, West Germany, an annual average of $ 80 billion of subsidies (equivalent to half of GDP in East Germany), its attempt to slowdown the pace of structural adjustment, especially the migration of East Germany, West Germany did not occur to the internal devaluation ( åslund 2007, pp. 92-93, 285-86). The other Baltic countries, Latvia, on the contrary, after the crisis, its exports and manufacturing have taken place in the amazing expansion. The first quarter of 2011 (see Figure 3), Estonia and Lithuania have reached its peak, annual export growth of 45%. Further expansion is unhealthy. Figure 3 2009-2011 total annual export rate of change of quarterly data Sixth, the external adjustment is mainly through import compression rather than expansion of exports to play a role. "(IMF 2012, p 49) This view is actually a partial correctness. Baltic imports began to fall in the mid-2008, while exports soared in early 2010, but this is a very limited period of time. Therefore not worthy of attention. Finally, the author of the IMF letter of intent that: the experience of Argentina 1998-2002 period shows that the experience of an economy into a vicious circle, through internal devaluation adjustment is not feasible, the only way for the ultimate recovery is breach of contract and abandon the currency peg system "(IMF 2012, p 49) bad policy will lead to bad results. Any claim that Argentina's pursuit of internal devaluation of sound policy (As described above, the seven countries in Europe) remarks seem tedious, and Moussa (2002) eloquent expression. Similarly, Greece has a similar soft policy adjustments, and more based on tax increases rather than spending cuts, which has led to the expected bad results, but this does not become even worse for the wrong reasons. Devaluation occurred after 10 years, Argentina is difficult to pursue the others will follow the economic policy, which is one of the performance of its failure. National Monetary Fund (IMF) concluded that the nominal interest rate is not only unnecessary, but also not conducive to regain competitiveness. On the contrary, if a country is to maintain a fixed exchange rate regime, then had to be more structural reforms, and are more likely to do so. The fixed exchange rate system to promote the Central and Eastern Europe's largest financial and structural adjustment. Latvia to resolve the crisis proved that the internal devaluation is feasible or even useful. The fixed exchange rate not only did not hinder the adjustment, but to promote a radical adjustment. This also applies to members of the European Monetary Union. Indeed, too much emphasis on the role of the exchange rate regime. Maurice Obstfeld and Kenneth Rogoff (2001, p 373) pointed out that the extremely weak relationship between exchange rate and macroeconomic aggregates. "The other policy is more important. Therefore, the demand for the major cost adjustment is not reason to leave the euro area.

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