Depreciations need not be seen as attempts to export

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: e to zero at present. In addition, as argued above, it is difficult to see how an end to deflationary expectations on its own will be able to bring forward aggregate demand to anything like the extent needed to overcome the economy’s present sluggishness. Depreciations need not be seen as attempts to export unemployment since, thanks to their favourable domestic multiplier effects, they can substantially raise imports. Krugman shows that in the case of the United States a 5 per cent depreciation of the dollar might well leave the current balance largely unchanged (Krugman, 1998, p. 163). In Japan, with its large trade surplus, however, the ‘mercantilistic’ effect of a lower currency is likely to be much larger. Simulations carried out in the mid-1990s on the Economic Planning Agency (EPA)’s World Economic Model suggest, for instance, that a similar depreciation would raise real net exports by some 0.4 per cent of GDP over a 2-year horizon (EPA, 1995). 8 A. Boltho and J. Corbett (ii) Waiting for an Autonomous Recovery If demand-man...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online