the nominal exchange rate is the
It plays no role in trade.
It is also used by forex traders who engage in currency arbitrage. I suspect the Chinese government has little control over these things.Alec, A trade weighted exchange rate relates to multiple countries, not one. The real value of the yuan was appreciating.The dollar was pegged to gold from 1879 to 1933, and yet I don’t think the US government was “manipulating” the exchange rate. That said, I’ve always been annoyed when I talk about nominal exchange rates and monetary policy and people (including other economists) immediately jump to the effects on trade, rather than on the domestic impact coming from the monetary policy driving the nominal exchange rate movement.
But if I am wrong and it does exist, then it surely refers to the real exchange rate, not the nominal rate. The nominal bilateral exchange rate (NBER) doesn't take prices levels into consideration. This could be export or import value, the total value of exports and imports combined or some other measure. [Update: I meant fully funded pension system, not pay as you go.]5. I personally believe they are mistakenly misunderstood by many laymen, and purposefully misrepresented by many economists for political reasons. The government can create a sovereign wealth fund.4. 329-30).The text here was copied from Google Books which doesn’t have page numbers. A pay-as-you-go system may be good or bad, but the introduction of such a system should reduce private savings. It plays no role in trade.Protectionism is a set of policies (such as tariffs and quotas) that drives a wedge between domestic and foreign prices. The government can switch from an income tax to a consumption tax.None of these are protectionist.
Furthermore, much of the concern about CA imbalances reflects long run trends, which cannot be explained by nominal stickiness.Don’t you mean misunderstood? (Of course, no one bothers about the current-account balance of a state, but I believe the concept makes perfect sense. It's the price of a currency expressed in terms of another currency. Answer The Following Questions A. There is no theoretically respectable case for the argument that currency manipulation can be used as protectionism. Some of this is based on the mercantilist fallacy that exports are good and imports are bad.Currency manipulation has become a favorite bugbear of critics of both monetary policy and trade policy. The Federal Reserve calculates three different NEER indices for the United States: the broad index, the major currencies index and the other important trading partners (OITP) index. Thus the fact that the nominal value of the Chinese yuan was pegged for a period of time has no relevance to whether the currency was being “manipulated”. In my view it is misleading to call policies that promote national saving “currency manipulation”, and even more so to put that label on just a subset of pro-saving policies. The nominal exchange rate is a monetary concept. It’s determined by the monetary policies of the two countries in question. The real effective exchange rate (REER) compares the relative exchange rate of a currency against a basket of foreign currencies. A higher NEER coefficient (above 1) means that the home country's currency is usually worth more than an imported currency, and a lower coefficient (below 1) means that the home currency is usually worth less than the imported currency. Why is the effect of QE not similar to the effect of the Treasury buying a foreign asset? There is no international standard for selecting a basket of currencies. In China since August 2015, the falling nominal exchange rate spooked millions of Chinese and businesses even as the real and trade-weighted rate appreciated.
These imbalances also occur within countries, and no one ever worries about regional “deficits”. But I suspect the major way that China ran a trade surplus was by a strategy of using state power to suppress the labor share of national income and the consumption share of GDP.
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