Macroeconomic Policy and Floating Exchange Rates

Caiden

macroeconomic-policy-and-floating-exchange-rates.pptx

Home >Business & Finance homework help >Economics homework help >Macroeconomic Policy and Floating Exchange Rates

C h a p t e r 1 8

To accompany

International Economics, 3e by Sawyer/Sprinkle

PowerPoint slides created by Jeff Heyl

Publishing as Prentice Hall

18 – ‹#›

CHAPTER ORGANIZATION

Introduction

Fiscal and Monetary Policy

Changes in Fiscal Policy

Changes in Monetary Policy

Monetary and Fiscal Policy in an Open Economy

Trade Flow Adjustment and Current Account Dynamics

Summary

18 – ‹#›

INTRODUCTION

Fiscal and monetary policies are two macroeconomic policies that governments employ to affect domestic output, maintain full employment and price stability

These are the 2 macroeconomic policies used to achieve the 3 goals of any economic policy

These polices have an effect on the exchange rate, the current account, interest rates, and short-run capital flows within an environment of floating exchange rates

18 – ‹#›

FISCAL AND MONETARY POLICY

Fiscal policy entails using changes in government taxation and/or spending to affect the level of economic activity GDP

Monetary policy uses changes in the money supply and/or interest rates to affect a county’s GDP

Changes in these policies have predictable effects on the exchange rate, the current account balance, and short-run capital flows

18 – ‹#›

FISCAL AND MONETARY POLICY

In this chapter (Ch18) we’ll assume these policies are conducted in a floating exchange rate regime ERR (effects in a fixed ERR are in Ch19)

The assumption is that the government does not employ fiscal and/or monetary policy in an attempt to generate a balanced current account, but to affect the output and price level

18 – ‹#›

FISCAL AND MONETARY POLICY

It used to be common practice for governments to focus fiscal and/or monetary policy on obtaining what is known as an external balance

Governments now tend to use monetary and fiscal policy to focus on a country’s internal balance

Internal balance refers to the levels of unemployment and inflation that fit the preferences of the citizens of various economies

The focus on internal balance comes at the expense of external balance considerations

Policies designed to achieve a desired internal balance may have large consequences for a country’s external balance

18 – ‹#›

CHANGES IN FISCAL POLICY

In most countries, government spending is such a large part of the GDP that any changes can have a critical impact on an economy

Substantial amounts spent on transfer payments mean tax revenues add to this amount

A portion of total government spending is usually financed through borrowing, thereby having a significant impact on country’s domestic financial markets and interest rates

18 – ‹#›

CHANGES IN FISCAL POLICY

The demand for loanable funds is the total demand for loans in the economy

It includes private sector demand from the public’s consumption activities that must be financed and business demand for funds for investment

The public sector demand is generated by the government’s need for funds which is the difference between total government spending and total taxes collected

18 – ‹#›

CHANGES IN FISCAL POLICY

The supply of loanable funds represents the total amount of money available to be borrowed by the private and public sectors of the economy

This is represented as perfectly inelastic; the amount of loanable funds is not related to the interest rate

In the short-run, the amount of money held in savings by the public determines the supply of loanable fund

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.1 Supply and Demand for Loanable Funds and Expansionary Fiscal Policy

Interest Rate (i)

Loanable Funds (L)

18 – ‹#›

CHANGES IN FISCAL POLICY

Expansionary Fiscal Policy

The government adopts an expansionary fiscal policy by choosing to lower tax revenues and/or have higher government spending

This leads to a government budget deficit (or larger deficit)

Assume government borrows to finance and does not print money

This will have a predicable effect on interest rates as in Fig 18.1

18 – ‹#›

CHANGES IN FISCAL POLICY

An expansionary fiscal policy causes an increase in the demand for loanable funds (from D to D’)

In a closed economy, this would cause interest rates to rise (from ie to i’)

In an open economy with freely flowing international capital, the rise in interest rates causes an inflow of capital and an increase in the supply of loanable funds (from S to S’)

This inflow of capital lowers domestic interest rates (from i’ back to ie)

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.1 Supply and Demand for Loanable Funds and Expansionary Fiscal Policy

Interest Rate (i)

i’

Loanable Funds (L)

D’

S’

18 – ‹#›

CHANGES IN FISCAL POLICY

The net result of an expansionary fiscal policy in an open economy is that less upward pressure is put on interest rates than would be the case in a closed economy

A larger federal government budget deficit tends to increase domestic interest rates which causes an inflow of foreign capital into the country

The capital flows have an effect on the equilibrium exchange rate (as described in Ch15)

This effect is shown in Fig. 18.2

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.2 Effects of Expansionary Fiscal Policy on the Exchange Rate

Exchange Rate (XR)

XRe

XR’

Foreign Exchange (FX)

S’

18 – ‹#›

CHANGES IN FISCAL POLICY

In an economy with a balanced current account, if the government adopts an expansionary fiscal policy and domestic interest rates rise, the inflow of foreign capital requires foreign investors to sell foreign currency to buy dollars

The supply of foreign exchange increases (from S to S’) and the nominal exchange rate appreciates (from XRe to XR’)

The capital inflows encouraged by the higher interest rates will result in a capital account surplus and a current account deficit (M-X at XR’)

18 – ‹#›

CHANGES IN FISCAL POLICY

Therefore, an expansionary fiscal policy puts upward pressure on domestic interest rates which leads to an increase in the flow of capital from abroad into the domestic financial markets leading to an appreciating currency and a current account deficit

However, we need to consider the effect of an expansionary fiscal policy on the domestic economy (using tools of AD and AS from Ch17)?

In a closed economy, this would lead to an increase in domestic output and price level

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.3 Effects of Fiscal Policy on Equilibrium Output and Price Level

Price Level (P)

P’

Real GDP (Y)

AD’

Y’

18 – ‹#›

CHANGES IN FISCAL POLICY

In an open economy, the effects are less clear as an expansionary fiscal policy has two conflicting effects

The policy increases AD as the government reduces taxes and/or increases spending –the direct effect

On the other hand, the policy reduces AD as the exchange rate appreciates and the current account balance deteriorates – the indirect effect

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.3 Effects of Fiscal Policy on Equilibrium Output and Price Level

Price Level (P)

P’

Real GDP (Y)

AD’

Y’

AD’’

AD’’’

Direct Effect: AD’

Indirect Effect: AD’’/AD’’’

18 – ‹#›

Direct Effect: Closed Economy Effect

Indirect Effect: Open Economy Effect

CHANGES IN FISCAL POLICY

The net effect depends on the magnitude of the two effects

Conclusion: Expansionary fiscal policy in an open economy is less effective at changing equilibrium output and price levels than in a closed economy

18 – ‹#›

CHANGES IN FISCAL POLICY

Contractionary Fiscal Policy

A contractionary fiscal policy would entail some combination of higher taxes and/or lower government spending

This reduces a government budget deficit or increases size of a surplus

Adopting a contractionary fiscal policy causes the overall demand for loanable funds to shrink (from D to D’) and lowers the interest rate (from ie to i’)

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.4 Supply and Demand for Loanable Funds and Contractionary Fiscal Policy

Interest Rate (i)

i’

Loanable Funds (L)

D’

S’

18 – ‹#›

CHANGES IN FISCAL POLICY

The lower domestic interest rate affects capital flow into the country as domestic and foreign investors would tend to invest less domestically and domestic investors would tend to invest more capital abroad

The net result would be an outflow of capital from domestic economy and the supply of loanable funds would decrease (from S to S’) raising interest rates (from i’ back to ie)

A contractionary fiscal policy puts less downward pressure on domestic interest rates in an open economy than in a closed economy

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.5 Effects of Contractionary Fiscal Policy on the Exchange Rate

Exchange Rate (XR)

XRe

XR’

Foreign Exchange (FX)

D’

18 – ‹#›

CHANGES IN FISCAL POLICY

A contractionary fiscal policy lowers the federal government budget deficit which decreases domestic interest rates and causes an outflow of capital

This increases the demand for foreign exchange (from D to D’) and the exchange rate rises or the domestic currency depreciates (from XRe to XR’)

This causes the capital account to become negative which causes the current account to become positive (X-M at XR’)

18 – ‹#›

CHANGES IN FISCAL POLICY

Therefore, a contractionary fiscal policy puts downward pressure on domestic interest rates which leads to an decrease in the flow of capital from abroad into the domestic financial markets leading to an depreciating currency and a current account surplus

What about the effects in a closed vs. open economy?

In a closed economy, this would lead to an decrease in domestic output and price level

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.6 Effects of Fiscal Policy on Equilibrium Output and Price Level

Price Level (P)

P’

Real GDP (Y)

Y’

AD’

18 – ‹#›

CHANGES IN FISCAL POLICY

In an open economy with free international capital flows, a contractionary fiscal policy causes AD to decrease and the domestic currency to depreciate as the government increases taxes and/or reduces spending—the direct effect

The contractionary fiscal policy increases AD as the currency depreciates and the current account balance improves—the indirect effect

A contractionary fiscal policy in an open economy is less effective in changing equilibrium output than it is in a closed economy

18 – ‹#›

CHANGES IN FISCAL POLICY

Figure 18.6 Effects of Fiscal Policy on Equilibrium Output and Price Level

Price Level (P)

P’

Real GDP (Y)

Y’

AD’’

AD’’’

AD’

Direct Effect: AD’

Indirect Effect: AD’’/AD’’’

18 – ‹#›

Direct Effect: Closed Economy Effect

Indirect Effect: Open Economy Effect

CHANGES IN FISCAL POLICY

The net effect depends on the magnitude of the two effects

Conclusion: In open economies with international capital mobility, contractionary fiscal policy is not as particularly effective in changing the equilibrium levels of output & prices

Fiscal policy can still, however, affect interest rates, exchange rates, capital flows and current account balances and the effects are noticeable in the economy and have an effect on business decision making

18 – ‹#›

CHANGES IN MONETARY POLICY

Most central banks in developed countries use discretionary monetary policy in an attempt to affect the short-run performance of the economy by changing the growth rate of the money supply and/or interest rates

Our interest is in explaining the effects of changes in monetary policy on exchange rates, the current account and by extension on a country’s overall economy

18 – ‹#›

CHANGES IN MONETARY POLICY

Expansionary Monetary Policy

An expansionary monetary policy results when a central bank increases the money supply or money supply growth rate

Increases in the money supply increase the supply of loanable funds (from S to S’) initially causing a decrease in the interest rate (from ie to i’)

The decrease in interest rates causes a capital outflow

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.7 Supply and Demand for Loanable Funds and Expansionary Monetary Policy

Interest Rate (i)

i’

Loanable Funds (L)

S’

18 – ‹#›

CHANGES IN MONETARY POLICY

Capital outflows cause demand for foreign exchange to increase (from D to D’) and the currency depreciates (from XRe to XR’) which worsens the capital account causing a deficit

This translates into a current account surplus as exports increase and imports decrease (X-M at XR’)

An expansionary monetary policy indirectly leads to a current account surplus when capital is mobile between countries

What about the effects in a closed vs. open economy?

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.8 Effects of Expansionary Monetary Policy on the Exchange Rate

Exchange Rate (XR)

XRe

XR’

Foreign Exchange (FX)

D’

18 – ‹#›

CHANGES IN MONETARY POLICY

In a closed economy, monetary policy is generally effective because lower interest rates increase both consumption and investment spending—the direct effect

AD increases (shifts from AD to AD’)

In an open economy, the fall in interest rates induces depreciation of the domestic currency and capital outflow improving the current account as exports increase and imports decrease—the indirect effect

The AD curve shifts even further to the right (from AD’ to AD’’)

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.9 Effects of Monetary Policy on Equilibrium Output and Price Level

Price Level

(P)

P’

Real GDP (Y)

AD”

Y’

P”

AD’

Y”

Direct Effect: AD’

Indirect Effect: AD’’

18 – ‹#›

Direct Effect: Closed Economy Effect

Indirect Effect: Open Economy Effect

CHANGES IN MONETARY POLICY

These movements in the exchange rate, the financial account and the current account tend to reinforce the initial effects of monetary policy on the domestic economy

Conclusion: The net result is that in an open economy with capital mobility, monetary policy is effective in increasing the level of economic activity (influencing output and price levels)

18 – ‹#›

CHANGES IN MONETARY POLICY

Contractionary Monetary Policy

In contractionary monetary policy, the central bank decreases the money supply or reduces the money supply growth rate

The most notable effect is an increase in domestic interest rates

In developed countries, decreasing money supply is done through selling government bonds, which decreases the supply of loanable funds (from S to S’) causing a rise in interest rates (from ie to i’)

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.10 Supply and Demand for Loanable Funds and Contractionary Monetary Policy

Interest Rate (i)

i’

Loanable Funds (L)

S’

18 – ‹#›

CHANGES IN MONETARY POLICY

This increase in domestic interest rates attracts foreign capital

In order to buy domestic financial assets, foreign investors must sell foreign currency and buy domestic currency in the foreign exchange market

The capital inflow will increase the supply of foreign exchange (from S to S’) causing a decrease in the exchange rate (from XRe to XR’)

This creates an exchange rate appreciation

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.11 Effects of Contractionary Monetary Policy on the Exchange Rate

Exchange Rate (XR)

XRe

XR’

Foreign Currency (FX)

S’

18 – ‹#›

CHANGES IN MONETARY POLICY

The capital inflows and appreciating exchange rate create a capital account surplus and a current account deficit (M-X at XR’)

What about the effects in a closed vs. open economy?

In a closed economy, a contractionary monetary policy is effective because the increased interest rate reduces the growth rate of consumption and/or investment

The reduction in total spending causes a decrease in AD lowering output and the price level

18 – ‹#›

CHANGES IN MONETARY POLICY

In an open economy, the effects are larger. Why?

The initial effect of a contractionary monetary policy is to decrease AD – the direct effect

The increase in interest rate induces capital flows into the country and an appreciation of the currency

The current account deteriorates as exports fall and imports rise—the indirect effect

Conclusion: In an open economy with free international capital mobility, contractionary monetary policy is highly effective in changing equilibrium levels of output and price

18 – ‹#›

CHANGES IN MONETARY POLICY

Figure 18.12 Effects of Monetary Policy on Equilibrium Output and Price Level

Price Level

(P)

P’

Real GDP (Y)

AD”

Y’

P”

AD’

Y”

Direct Effect: AD’

Indirect Effect: AD’’

18 – ‹#›

Direct Effect: Closed Economy Effect

Indirect Effect: Open Economy Effect

CHANGES IN MONETARY POLICY

Figure 18.13 Crowding Out in a Closed Economy

Interest Rate (i)

i’

Loanable Funds (L)

D’

L’

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

The effects of government policies are often described in terms of effects on a country’s external and internal balances

The current account balance represents the external balance while the equilibrium level of output and price level is the internal balance

At any point in time, there is an optimal balance of output level and price level implying full employment and stable prices

This is rarely observed

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Governments frequently use fiscal and monetary policy to achieve an acceptable balance between output and price level

Fiscal and/or monetary policy can be used to influence internal or external balance

In many cases, governments cannot balance both and have to choose which is more important

Typically internal balance is seen as most important and fiscal and/or monetary policy is focused on achieving an optimal internal balance

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Although both fiscal and monetary policy affect the current account and exchange rates, they are usually not the primary focus of policy

The public and the press tend to think the exchange rate and the current account are the primary targets of macroeconomic policies

While this may be the case, macroeconomic policy is often focused on a country’s internal balance

The policy mix of a country is the effects of various combinations of fiscal and monetary policy

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Table 18.1 Effects of Different Fiscal and Monetary Policies Under Flexible Exchange Rates and Free Capital Mobility

		Effect on
		Equilibrium Output	Equilibrium Price Level	Exchange Rate	Current Account
Fiscal Policy		Internal Balance		External Balance
Expansionary	–Direct	Increase	Increase
	–Indirect	Decrease	Decrease	Appreciates	Deteriorates
	–Net	Little or no Effect	Little or no Effect	Appreciates	Deteriorates
Contractionary	–Direct	Decrease	Decrease
	–Indirect	Increase	Increase	Depreciates	Improves
	–Net	Little or no Effect	Little or no Effect	Depreciates	Improves
Monetary Policy
Expansionary	–Direct	Increase	Increase
	–Indirect	Increase	Increase	Depreciates	Improves
	–Net	Large Increase	Large Increase	Depreciates	Improves
Contractionary	–Direct	Decrease	Decrease
	–Indirect	Decrease	Decrease	Appreciates	Deteriorates
	–Net	Large Decrease	Large Decrease	Appreciates	Deteriorates

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Consistent Policy Mixes

In a recession, the real GDP is below the full employment level

The government wants to increase output by adopting an expansionary monetary policy and/or expansionary fiscal policy

A combination of both would tend to increase output and price level

The potential for rising prices may be deemed an acceptable risk

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

The effect on the exchange rate is unclear depending on magnitude of change in the two policies on domestic interest rates

The effect on the current account is also unclear depending on the effect on interest rates

From a policy perspective, battling a recession and letting the external balance adjust as needed is a safe option

The domestic economy would improve and the external balance is unlikely to change by a large amount in either direction

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

A similar scenario emerges if the problem is inflation

The economy is temporarily producing output at greater than full employment levels

The government would employ a combination of contractionary monetary and fiscal policies

The effects on internal balance are that both equilibrium output and the price level would fall

The effects on the external balance (exchange rate and current account) are unclear since policies move in opposite directions

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

This policy mix does not appear to be a problem as the internal balance moves in the desired direction without dramatic changes in the external balance

When governments adopt similar fiscal and monetary policies, the equilibrium level of output and the price level (internal balance) can be changed without making drastic changes in the exchange rate or current account balance (external balance)

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Inconsistent Policy Mixes

Mixtures of fiscal and monetary policies that are inconsistent with one another (one expansionary, the other contractionary) are inconsistent with internal balance objectives

Why would a government adopt such a mixture when the effects are unclear?

Often different policy makers are in control of fiscal and monetary policy

In the U.S., elected officials control the fiscal policy while the independent Federal Reserve determines the monetary policy

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

The effect of inconsistent policies can be ambiguous on the domestic economy (internal balance)

However, the effect on the external balance is explicit (see Table 18.1)

An expansionary fiscal policy and contractionary monetary policy leads to an appreciation of the currency and decreased current account

The policies reinforce one another and the effect on the external balance can be significant

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Similarly, a contractionary fiscal policy coupled with an expansionary monetary policy leads to a depreciation of the domestic currency and an improvement in the current account balance

The point of our discussion is that inconsistent policy mixes can have extreme effects on a country’s external balance

The effect of changes in the country’s exchange rate can have a dramatic impact on the competitiveness of individual firms with tradable goods

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Figure 18.14 Federal Budget Deficit and the Balance on Current Account for the U.S., 1980-1996

50 –

0 –

–50 –

–100 –

–150 –

–200 –

–250 –

–300 –

Federal Deficit

Current Account

Year

1980

1985

1995

1990

In Billions of Dollars

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Figure 18.15a U.S. Real Exchange Rate and Long-Run Interest Rate, 1980-1996

9 –

6 –

3 –

0 –

–3 –

Real Interest Rate

Year

1980

1985

1995

1990

Long-Run Real Interest Rate

18 – ‹#›

MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY

Figure 18.15b U.S. Real Exchange Rate and Long-Run Interest Rate, 1980-1996

140 –

130 –

120 –

110 –

100 –

90 –

80 –

Real Exchange Rate

Year

1980

1985

1995

1990

Real Exchange Rate 1973 = 100

18 – ‹#›

Implicit in our analysis was an assumption of no lag in the effects of monetary and fiscal policies on macroeconomic variables

If financial markets are relatively efficient, then interest rates are affected quickly

Moreover, high capital mobility allows the exchange rate to change relatively quickly

However, the response of trade flows to changes in exchange rates may not always happen quickly

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

18 – ‹#›

The price of imports and exports may not change instantly as the exchange rate changes

International trade may respond slowly to changes in prices compared to the response of financial markets

The time it takes for the exchange rate to affect a country’s exports and imports and the current account balance may be as long as six months to a year

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

18 – ‹#›

In the long-run, as a country’s currency depreciates, its exports expand and imports contract (and vice versa)

In the short-run, as a country’s exchange rate changes, the response of exports and imports and current account balance could very easily be in the opposite direction

In part, this is because international trade is often conducted between parties on a contract basis

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

18 – ‹#›

Also, in the short-run, demand for the more expensive imports (and demand for exports, which are cheaper to foreign buyers using foreign currencies) remain price inelastic

This is due to time lags in the consumer's search for acceptable, cheaper alternatives

The net effect is that the current account may initially worsen after a depreciation and only improve after a lag

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

18 – ‹#›

The effect on the current account balance has been called the J-curve

This reflects the tendency for the current account balance to initially worsen when a currency depreciates

Only after contracts are renewed to reflect the new exchange rate will the current account begin to improve

It is important for policy makers to take the lag effect into account

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

18 – ‹#›

TRADE FLOW ADJUSTMENT AND CURRENT ACCOUNT DYNAMICS

Figure 18.16 The J Curve

Current Account Balance

Current Account Surplus

Time

Current Account Deficit

18 – ‹#›

Governments use fiscal policy to change the level of taxation and/or government spending at the national level to affect the level of economic activity (GDP). Governments use monetary policy to change the money supply or interest rates to affect a country’s level of economic activity.

A country’s exchange rate and its current account balance represent its external balance

Expansionary fiscal policy occurs when a government chooses to adopt some combination of lower tax revenue and/or higher government spending

SUMMARY

18 – ‹#›

In an open economy with international capital mobility, expansionary fiscal policy leads to a rise in interest rates which causes and inflow of foreign capital

A contractionary fiscal policy in an open economy is not very effective in reducing the price level or real GDP

Expansionary monetary policy occurs when a government chooses to increase the money supply or the money supply’s growth rate

SUMMARY

18 – ‹#›

In an open economy with international capital mobility, expansionary monetary policy leads to a fall in interest rates which causes an outflow of foreign capital

A contractionary monetary policy would lead to higher interest rates, lower output, and a lower price level

Consistent policy mixes can be effective in solving internal balance problems

SUMMARY

18 – ‹#›

Mixtures of fiscal and monetary policy that are inconsistent with one another are also inconsistent with internal balance objectives

In the long run, as a country’s currency depreciates, its exports expand and imports contract. In the short run, its current account balance could very easily move in the opposite direction.

SUMMARY

18 – ‹#›