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New evidence points to diminishing impact of a currency depreciation
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12th June 2017
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.
When Currencies Fall, Export Growth Is Supposed to Follow—Until Now | outstanding article on currencies & growth https://t.co/JWVejzwgfg
— Tutor2u Geoff (FRSA) (@tutor2uGeoff) June 12, 2017
- 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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