Sterling and the Economic Recovery

Despite a recent appreciation against the US dollar and the Euro, sterling remains well below its value of two years ago. But has the weakness of the pound - which has given the British economy a competitive boost at a time of recession -  delivered the extra impetus for demand that we have been searching for? Edmund Conway considers this in his column in the Telegraph today - Weak pound might not be enough to rescue UK economy -

Car exports are looking healthier and the British economy has not see the same scale of peak to trough decline in real GDP / industrial output that countries such as Japan and Germany have suffered thus far.

But overall the British export sector seems to be taking a long time to exploit the opportunities of a competitive exchange rate. Weak demand in overseas markets has not helped; perhaps deeper supply-side weakness in non-price competitiveness is also hurting some exporters? Or have the time lags lengthened between a sizable currency depreciation and the impact on AD and an improvement in the trade balance.

The Edmund Conway article makes explicit reference to a well known concept in A2 macroeconomics - namely the J-curve effect.

“Economists talk about the so-called j-curve effect, which means that the initial months after a depreciation are often paradoxically tough for an economy. As we saw in the past year, the weak pound has kept inflation higher, and so pushed up costs for businesses, so the benefits of depreciation have not yet fed through. Likewise, it takes time for manufacturers and consumers to react to changes in currency; they do so over a course of months rather than days or weeks. The upshot is that it often takes some time before the benefits of a devaluation feed through.”

Revision presentations on exchange rates

AS Macro - exchange rates

A2 Macro - exchange rates

Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 2 Macro: The Current Account of the Balance of Payments [20 May 2012]
Unit 2 Macro: UK Trade in Services [20 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Positive and Negative Multiplier Effects [20 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Grexit - Andrew Balls on Greece and the Euro [16 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Made in China - but not quite so cheaply…... [7 May 2012]
Unit 2 Macro: 10 Key Revision Topics for EdExcel [7 May 2012]
F585: Recent Articles of Relevance [6 May 2012]
Unit 2 Macro: Exchange Rates Glossary [5 May 2012]
Unit 4 Macro: TV Assembly Back in the USA [5 May 2012]
Unit 2 Macro: Growth and Development Glossary [5 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Unit 2 Macro: Unemployment Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Unit 2 Macro: Aggregate Demand Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Unit 2 Macro: Britain back in Recession [29 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 3 Micro: The Third Industrial Revolution [20 Apr 2012]
Unit 2 Macro: Skills Shortages Hold Back Recovery [12 Apr 2012]
Unit 2 Macro: Globalisation and the Growth of Ports [10 Apr 2012]
Unit 2 Macro: How the Economic Cycle affects Businesses [6 Apr 2012]
Unit 2 Macro: The UK Balance of Payments in 2011 [4 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 4 Macro: Productivity Improvements in China [3 Apr 2012]
Unit 4 Macro: Floating and Managed Floating Exchange Rates [2 Apr 2012]
Unit 4 Macro: Pain in Spain as Fiscal Austerity Bites [1 Apr 2012]
Unit 2 Macro: Revision on Index Numbers [31 Mar 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Unit 2 Macro: Revision on Capital Investment [30 Mar 2012]
Unit 3 Micro: EU Imposes Further Price Cap on Mobile Phone Companies [29 Mar 2012]
Global Economy- the 2012 BRICS Summit [28 Mar 2012]
Intergenerational Equity - Fairness and the Slump [28 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Unit 1 Micro: The Tax on Beer [16 Mar 2012]
Unit 1 Micro: Inequality - The Rise of Fuel Poverty [15 Mar 2012]
Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
Evidence of the dangers of protectionism [9 Mar 2012]
Unit 4 Macro: Enlarging the EU [9 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: News Videos on the German Economy [9 Mar 2012]
Unit 2 Macro: Focus on UK Manufacturing [6 Mar 2012]
Unit 4 Macro: Sovereign Wealth Funds [4 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Unit 1 Micro: Highest and Lowest Paid Jobs in the UK [26 Feb 2012]
Unit 2 Macro: Targeted Tax Cuts to help the Economy [22 Feb 2012]
Pinterest: Board on Developments in the EU Economy [19 Feb 2012]
Unit 2 Macro: The Dash for Gas in Mozambique [17 Feb 2012]
Unit 2 Macro: Is the UK Economy Turning a Corner? [15 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Economics Explained, by Evan [12 Feb 2012]
Unit 2 Macro: China’s Trade Engine is Spluttering [10 Feb 2012]
Martin Wolf on Global Shocks [10 Feb 2012]
Competitiveness [8 Feb 2012]
Trucks are the new way of measuring debt [1 Feb 2012]
Unit 2 Macro: Growth and Development - Some Indicators [30 Jan 2012]
Unit 4 Macro: Focus on India - Comparative Advantage [27 Jan 2012]
Unit 2 Macro: Focus on China - Trade and Growth [27 Jan 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
Unit 2 Macro: Can China Stay Competitive [25 Jan 2012]
Unit 1 Micro: Can the UK Computer Games Industry Grow [24 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 3 Micro: 3D Printing and a Manufacturing Revolution [23 Jan 2012]
Unit 2 Macro: Exporting to the Booming Chinese Economy [23 Jan 2012]
Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
Unit 2 Macro: Videos on Productivity [17 Jan 2012]
Unit 4 Macro: France loses her AAA credit rating [15 Jan 2012]
Unit 2 Macro: Frontier Markets - the New BRICS? [15 Jan 2012]
Beyond the Bike - The Importance of Remittances [15 Jan 2012]
Unit 4 Macro: Time to Re-Boot the British Economy [14 Jan 2012]
Unit 4 Macro: Economics of Fiscal Deficit Reduction [12 Jan 2012]
Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
Unit 4 Macro: UK Trade Patterns [11 Jan 2012]
Unit 4 Macro: Does Manufacturing Matter? [10 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Unit 1 Micro: Low Cost Airlines Beat the Recession [1 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
European Economics: Resources on the CAP [28 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
The Eurozone Crisis Explained (again!) [22 Dec 2011]
Unit 4 Macro: The Rise in Self Employment [17 Dec 2011]
Unit 4 Macro: Celebrating (?) Ten Years of Euro Notes and Coins [2 Dec 2011]
Unit 1 Micro: Inside a Biscuit Factory [1 Dec 2011]

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