New evidence points to diminishing impact of a currency depreciation
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