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New evidence points to diminishing impact of a currency depreciation

Geoff Riley

12th June 2017

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This article from the Wall Street Journal is superbly relevant for any exam question that asks students to evaluate the economic impact of a currency depreciation. The rising level of import content in many manufactured products means that a significant depreciation in a currency often no longer has the expansionary effects on exports, domestic output, profits and jobs that textbooks once supposed.

  • Between 1995-2011 import content of exports rose from 14% to 24% for OECD nations. This blunts the impact of a currency depreciation
  • According to IMF data: Where currencies weaken by >13% in advanced economies, or 20% in emerging ones—results in a 10% rise in X over five years
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Geoff Riley

Geoff Riley FRSA has been teaching Economics for nearly forty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD and Revision conferences in the UK and overseas.

@tutor2uGeoff

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