A Simplified Method for Analyzing the Effects of Exchange Rate Changes on Exports of a Primary Commodity

THIS PAPER presents a simple method of taking account of a number of exchange rate changes as they may affect the value of world exports of a primary commodity and the export earnings of a single country from the commodity. In the circumstances of a realignment of major currencies, a primary producing country will need to determine an appropriate exchange rate policy that considers the implications for its commodity export sector among other major elements of its balance of payments situation. Ad hoc decisions were made to accommodate to the floating of some currencies after August 1971, but a definitive choice had to await agreement on the major currencies and at that stage could best be settled in a synchronized manner in recognition of the interdependence with other suppliers of the individual country’s main exports. The risk of competitive devaluation or of stimulating overproduction of commodities is as real for primary producers as for industrial countries. The analysis required is more complex than can be made from the ordinary treatment of an exchange rate change initiated by a single country, since the exporter must appraise both the differentiated changes likely in importing countries and the probable exchange rate reactions of other producers. The approach suggested takes into account the interdependence of the national components of world trade and, although limited here to analysis of export prices and earnings, can be extended to the import side of the trade balance of a single country.1

Abstract

THIS PAPER presents a simple method of taking account of a number of exchange rate changes as they may affect the value of world exports of a primary commodity and the export earnings of a single country from the commodity. In the circumstances of a realignment of major currencies, a primary producing country will need to determine an appropriate exchange rate policy that considers the implications for its commodity export sector among other major elements of its balance of payments situation. Ad hoc decisions were made to accommodate to the floating of some currencies after August 1971, but a definitive choice had to await agreement on the major currencies and at that stage could best be settled in a synchronized manner in recognition of the interdependence with other suppliers of the individual country’s main exports. The risk of competitive devaluation or of stimulating overproduction of commodities is as real for primary producers as for industrial countries. The analysis required is more complex than can be made from the ordinary treatment of an exchange rate change initiated by a single country, since the exporter must appraise both the differentiated changes likely in importing countries and the probable exchange rate reactions of other producers. The approach suggested takes into account the interdependence of the national components of world trade and, although limited here to analysis of export prices and earnings, can be extended to the import side of the trade balance of a single country.1

I. Introduction and Summary

THIS PAPER presents a simple method of taking account of a number of exchange rate changes as they may affect the value of world exports of a primary commodity and the export earnings of a single country from the commodity. In the circumstances of a realignment of major currencies, a primary producing country will need to determine an appropriate exchange rate policy that considers the implications for its commodity export sector among other major elements of its balance of payments situation. Ad hoc decisions were made to accommodate to the floating of some currencies after August 1971, but a definitive choice had to await agreement on the major currencies and at that stage could best be settled in a synchronized manner in recognition of the interdependence with other suppliers of the individual country’s main exports. The risk of competitive devaluation or of stimulating overproduction of commodities is as real for primary producers as for industrial countries. The analysis required is more complex than can be made from the ordinary treatment of an exchange rate change initiated by a single country, since the exporter must appraise both the differentiated changes likely in importing countries and the probable exchange rate reactions of other producers. The approach suggested takes into account the interdependence of the national components of world trade and, although limited here to analysis of export prices and earnings, can be extended to the import side of the trade balance of a single country.1

The commodity-by-commodity approach adopted for evaluating the export effects of exchange rate changes draws on the partial equilibrium analysis of a commodity’s supply and demand, aggregating the results for several commodities to arrive at a general conclusion on the net gains or losses for a country’s exports as a whole. With a complementary analysis for imports, the primary balance of trade changes can be determined and the further refinements of the “absorption” approach applied.2 This approach is therefore broader than the international price, or elasticities, component of exchange rate adjustment analysis; it necessarily encompasses the impact on world demand, supply, and prices of all currency rate changes (including that of the country in question) and then identifies the specific results for the single exporter.

Where the domestic supply of a commodity in importing countries and the domestic demand in exporting countries are not significant, the analysis can be focused directly on import demand and export supply. This type of world market is considered in Sections II and III, in terms of price theory, by defining exchange rate changes as shifts in import demand and export supply schedules and by considering the role of price elasticities in the resulting equilibrium prices and quantities. Where international price formation in the commodity market reflects important elements other than international transactions, the import demand and export supply elasticities and the character of the shifts will require additional allowance for the domestic components of the market. Moreover, the shifts in demand and supply are assumed to be fully equivalent to the exchange rate changes and not to alter the historical response of sellers and buyers to price changes. Relaxation of these limiting assumptions is discussed in Section IV.

Since all possible magnitudes of exchange rate changes cannot conveniently be examined, the hypothetical case illustrated is that of differentiated exchange rate changes of various importer currencies with exporters adopting one of three of a number of possible alternatives in their exchange rates in consequence:

(a) The currencies of all exporting countries appreciate against the currency of one particular importing country, in line with an appreciating currency of another importing country;

(b) Each exporter pegs its rate to that of the importing country that is dominant among its markets, in accordance with the rate or cross rate that is consistent with the par values that were agreed with the International Monetary Fund;

(c) All exporters align with the depreciating currency of the importing country given in (a) above.

Since the method is quite general, any other combinations of exchange rate choices for either importers or exporters can be elaborated similarly; for example, the presumption could be that one or more exporters revalue in line with relatively strong currencies among importer currencies.

Formulas are derived in Sections II and III for assessing changes in world export value, volume, and price and for changes in the value and volume of exports from an individual country. When estimates of the relevant commodity price elasticities are obtained, each formula can be reduced to an equation in terms of the weighted average exchange rate changes in importer and exporter currencies. These equations might then be interpreted in accordance with the magnitude of major currency changes, or, as a particular example, the spread of floating rates from par values. Even without recourse to hypothetical numbers, the formulas allow elimination of some alternative policies as inferior to others concerning exports.

Section IV discusses the nature of the simplifications of the economic forces at work that are implied in the short-cut method adopted here. These relate chiefly to estimating the appropriate shift factors and elasticities in specific cases. Refinement of estimates would require allowance for the ramifications of the exchange rate change through the general economies of the importing and exporting countries into the international commodity market. Market imperfections also require consideration; rigidity in sources of supply may be caused by special relations between buyers and sellers. If these, and other factors mentioned, can be quantified in terms of either shifts or elasticities, they can be incorporated directly into the formulation of the demand/supply relationships.

II. The Impact on World Prices and Trade

To determine the impact on individual suppliers, the change in the world price is the primary datum required. The characteristics of demand and supply of all major trading countries must first be assessed for the contribution that these components of world trade in the commodity make to changes in the world price under the altered regime of currencies. If the country in question is itself a major exporter, its supply adjustment to the new set of exchange rates, including its own exchange rate, is also a partial determinant of the world price change. Estimating the equilibrium between the supply of and the demand facing individual countries would be less sound conceptually and a more difficult procedure, although perhaps superficially a more attractive approach to the problem. As noted in the following section, the change in the world price, in conjunction with the country’s conditions of supply, is sufficient to determine the change in the country’s export trade; estimation of the demand function facing the individual country is thereby avoided.

For purposes of expounding the method, the demand and supply relationships can be more conveniently specified in terms of a numeraire currency, in relation to which one or more importer currencies depreciate and some other importer currencies appreciate. Specification in terms of a currency against which all other importer currencies either appreciate or depreciate confines the analysis to shifts in one direction only, and may also make it less easy to think of the results in relation to an earlier mix of foreign exchange earnings. However, in the application of the formulas in specific cases, the foreign exchange unit selected makes no difference to the comparability of the simulated results. Moreover, its use does not necessarily mean that an international market located there, or demand in that country, leads the world market in price formation.

Exchange rate changes of undefined magnitude are interpreted as causing shifts in demand and supply schedules. Without materially affecting the usefulness of the estimates, the changes considered can be limited to countries with a substantial interest in imports or exports of the commodity. The shift factors are assumed to be equivalent to the size of the exchange rate changes, and certain qualifications to this assumption of exact equivalence are discussed in Section IV.

The shift factor (K) in demand for a particular set of importer exchange rate changes, weighted by hypothetical import shares,3 can be expressed as

K=0.11K1+0.21K2+0.20K3+0.14K4+0.11K5+0.09K6,(1)

when the currency of K7 is taken as the numeraire and K1, K2, etc., are percentage changes in exchange rates relative to that currency. World import shares are 11 per cent, 21 per cent, etc., for countries of currencies represented by K1, K2, etc.; the share of the country of the numeraire currency (K7) is the residual 14 per cent. The value of K would tend to be positive—a rightward shift of the aggregate demand curve—if the currencies of depreciating currencies represented a small share of world trade. In the example of a world trade distribution given in equation (1), an average appreciation of 1 per cent in K2 to K6 would offset a depreciation of 6 per cent in K1. If this trade distribution was applied to the direction of exchange adjustments agreed in December 1971, they could be represented as causing an upward shift in global demand in terms of prices in, say, sterling for commodities of which the United States was a relatively small importer. Depreciation of the dollar, in terms of market rates for sterling, would not have direct effects on the demand for such commodities large enough to offset those from countries of currencies whose market rates were appreciating against sterling.

Similarly, the shift factor (R) in world supply may be expressed as the average percentage change in exporter exchange rates relative to the currency of K7, weighted by the shares of exporters in the world market for the commodity 3

R=0.30R1+0.28R2+0.16R3+0.07R4+0.19R5,(2)

when percentage rate changes for individual countries, relative to the currency of K7, are R1, R2, etc., and hypothetical export shares are 30 per cent for R1, etc.

The value of R could be positive or negative, and the consequent supply shift could be in either direction in accordance with the policies adopted by major exporters. The probability of a positive R value is slight, as this result would involve exchange rate improvement against the currency of K7 (which is appreciating in terms of the currency of K1) for countries representing an appreciable share of world exports. However, if all exporters retained previous rates against the currency of K7 (alternative (a) in Section I), the supply curve would not shift (R = 0). If one or more exporters pegged to the currency of K7 while others pegged to the depreciating currency of K1 (corresponding to alternative (b)), the supply curve would move to the right (R is negative). If all exporters pegged to the currency of K1 (alternative (c)), the supply curve would move further to the right. On the basis of currency measures taken by primary producers since December 1971, the value of R would be negative for most primary products, in terms of a major currency of an unchanged par value; that is, at any level of prices, in terms of that currency, within the price range of the supply curve, more of the commodity would be supplied than previously.

The elasticity values appropriate to the exercise would usually be those applicable for a medium-term time horizon, that is, about long enough to bring about full substitution effects from existing technical possibilities on the demand side and to allow full supply response in terms of existing capacity. They may be determined partly from the aggregation of available national import or export elasticities, weighted by country shares, and partly from studies of world supply/demand relationships. For example, the ranges of elasticities employed in the illustration, as shown in Table 1 (−0.2 to −0.8 for demand and 0.5 to 0.7 for supply), appear reasonable for some metals, based on knowledge of the main features of market behavior relevant to a two-year to three-year projection. The elasticities would be expected to be somewhat higher for a longer-term period. The supply elasticity is probably considerably higher for some annual agricultural crops.

Table 1.

An Illustrative Example of the Primary Effect of Changes in Several Exchange Rates on Exports of a Commodity in World Trade and from a Single Country1

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R is defined as the weighted average of percentage changes in exporters’ exchange rates, in terms of the currency of K7, with weights proportional to the percentage share of exports in world trade in the commodity, as set out in equation (2).

K is defined as the weighted average of percentage changes in importers’ exchange rates, in terms of the currency of K7, with weights proportional to the percentage share of imports in world trade in the commodity, as set out in equation (1).

The percentage change in the world price (P), in the numeraire currency, is calculated as 4

ΔP=RηSKηDηSηD(3)

and the percentage change in quantities in world trade (Q) as

ΔQ=ηDηS(KR)ηSηD,(4)

where ηS = the price elasticity of world supply of the commodity

ηD = the price elasticity of world demand for the commodity.

The following table sets out, in columns 2 and 3, changes in world price and quantum resulting from the hypothetical pattern of trade in equations (1) and (2), on various assumptions regarding the direction of currency realignments and price elasticities. For example, under alternative (b), the currencies of R2, R4, and R5 are postulated as aligning with the depreciating currency of K1, R3 with a currency (K4) appreciating against the numeraire currency of K7, and R1 with the currency of K7. From equation (2), the value of R becomes approximately half of any depreciation in the currency of K1 offset by 16 per cent of any appreciation in the currency of K4. Under alternative (b), with price elasticities given under line (1) of the elasticity assumptions, the change in world price is calculated as 0.71R + 0.29K. The change in world price is upward if 29 per cent of a net average appreciation in importer currencies (K) is greater than 71 per cent of a net average depreciation in exporter currencies, that is, assuming that K and R as determined above represent a rightward shift of the aggregate demand and supply curves. An estimate of the numerical value of the world price change can then be made by substituting numerical values for the exchange rate changes.5

Whether the world price rises or falls, changes in quantum (column 3) are positive if there is a net appreciation of importer currencies not matched by an equivalent net appreciation of exporter currencies. The increase in quantum is enlarged to the extent that exports are cheapened by depreciation of exporter currencies (supply shift to the right) as measured by R in the term KR in equation (4). The effect on the value of world exports (column 4) is the algebraic addition of columns 1 and 2, and may be expressed as

ΔV=RηS[1+ηD]KηD[1+ηS]ηSηD(5)

III. The Impact on Exports of the Individual Country

Changes in the quantum and value of a single country’s exports of the commodity are set out in columns 5 and 6 of the table; the case taken is that of the country of currency R1.6 The single country’s export adjustment is with respect to the change in the world equilibrium price, that change having taken account comprehensively of both global demand and the supply response from all exporters, including the country in question. In terms of that exporter’s currency, the percentage quantum response in exports (Q1) is

ΔQ1 = ηs1 · ΔP1

and

ΔP1 = ΔP - R1

when ηs1 = price elasticity of the country’s export supply of the commodity

and R1 = the percentage change in the country’s exchange rate against the numeraire currency (K7)

P = the world price in terms of the numeraire currency.

The percentage change in the value of the country’s exports (V1), in terms of the numeraire currency of K7, is determined as

ΔV1=ΔP(1+ηS1)R1ηS1,(6)

so that, if the country’s currency remained aligned with the numeraire currency, the change would be related only to the supply response to the change in world price and not to any shift factor improving (for example, from devaluation) local currency realizations at given numeraire currency prices

ΔV1 = ΔP(1 + ηs1): R1 = 0.

IV. Practical Applications

The definitional relationships established in the preceding sections are a framework for analysis and estimation in particular cases. The framework has to be filled in, not only with values for exchange rate changes but also with some allowance for secondary effects generated by currency changes and with realistic estimates of the conditions of supply and demand for specific commodities. These entail specialized knowledge of economies and commodities, and in the circumstances of a major realignment of many currencies, the uncertainties induce caution in applying historical relationships. Some comments on dealing with these aspects are discussed briefly in this section.

A major qualification concerns the working assumption that shifts in demand and supply schedules exactly reflect changes in exchange rates. On the import side, partial reversal of primary exchange rate effects may operate through various factors, including—although not limited to—the transference of changes in economic activity under the new exchange regime through end-use output and consumer usage to the import demand functions for specific commodities. Even where national economic and monetary policies insulate the general level of economic activity from the full impact of devaluation or depreciation, and a constant output assumption seemed reasonable, significant sectoral shifts might be occurring. Other secondary effects might be felt through the impact of inflationary or deflationary tendencies on cost levels, and possibly on the distribution of consumption expenditure. For particular commodities, effects might be demonstrated through changes in inventory levels or use of particular market centers; new exchange rate policies might also alter the motives for bilateral trade arrangements.

The quantification of all such effects could be highly speculative and laborious, especially in following them through for primary commodities that re-enter international trade in successive forms of manufacture in trade between industrial countries. Moreover, the incidence of reversal factors in the exchange rate shift may be significantly offset where measures are taken for special sectors. In some industrial countries, for example, domestic agriculture has a high input of imported commodities for which price stability might be sought through tax adjustment. Food cost stabilization may be a policy applied in others. For many industrial country importers, it might be reasonable to assume that the primary exchange rate shift for many commodities would not be modified appreciably even over a medium-term period by secondary reversal factors. This could be more so for most food commodities; on the other hand, some raw material markets are sensitive to changes in industrial production.7 The main indicators required to identify the significant cases are the relationships between industrial activity or gross national product (GNP) and imports of the commodity, and between an exchange rate change and industrial activity or GNP. In addition, the significance of a reversal factor for export earnings might be tested by estimating the results for a range discounted from the full value of the K factor.

A related issue in this area applies to commodities produced or closely supplemented by production in importing countries. The experience of the European Economic Community (EEC) in operation of the Common Agricultural Policy following exchange rate changes is illustrative.8 Extension of the analysis to include the domestic commodity supply sectors of importing countries does not affect the nature of the external market relationships stated but involves appreciably larger problems of estimation. Where industrial countries are also major exporters of primary commodities they can, of course, be included in the exercise on the same basis as other exporters, with the proviso that derivation of the export supply response from appreciation or depreciation could not safely ignore domestic demand interactions as in many primary producing countries.

On the export side, secondary reversal effects from currency rate changes are, generally, likely to be less significant in the medium term than in large industrial countries. This reflects the fact that many export-oriented sectors are low opportunity-cost sectors for capital, labor, or land use, as well as the extensive technical rigidities inherent in the form of production enterprise. However, a certain number of cases would require an analysis parallel to that for importing countries, where important domestic markets for primary exports exist or where it is known that commodity production can be affected by domestic inflation or the level of economic activity.

A second major qualification concerns market imperfections. For practical purposes it can be assumed that the market makes world prices, that exporters accept those prices simultaneously, and that there is no economic incentive, on grounds of price, for importers to prefer one source of supply to another. The relationships stated in Sections II and III thus abstract from consideration of cross-elasticities of demand or price elasticities of substitution, which could not be done in considering trade in manufactures.9 It follows that changes in market shares among exporters are determined by the differentiated export supply functions of individual countries, and the supply functions can be specified to allow for some features of the marketing system that modify a direct transmission of production changes to export supply. These include quota arrangements, any other kind of price-determined supply management implemented by an exporter, and tax policies. But, in addition, the supply function would have to incorporate both price and nonprice determinants; the latter include elements of preferential arrangements or other factors that bring rigidity into patterns of trade, as well as institutional features, contracts, and a compendium of commercial and political relations. These influence market shares and could at one extreme be visualized as indicating a supply curve with nil elasticity and no shift, that is, insensitive to exchange rate changes.

Another problem is the quantitative expression of import demand or export supply trends occurring over a medium-term period. In theoretical terms, the method adopted is an exercise in comparative statics and uses a concept of demand or supply curves for a medium-term market period of, say, three years embodying only the lagged reaction to current prices by the end of the period. In practice, and particularly for commodities in which a large upsurge or decrease in output or usage from maturing investment or other previously present factors may be expected in the medium-term future, allowance might be made for projected output from these factors. Comparison could not then be made directly with historic patterns of imports and exports. The exercise would need to use consistent bases in this respect; as a simulated solution for comparison with a control solution, the historic medium-term demand and supply functions would in most cases be imposed by data limitations. The results would not purport to be projections of actual commodity trade changes in the medium-term period following exchange rate measures.

Finally, price elasticity coefficients for primary commodities can be deceptive as simple measures of complex forces in a trade situation. Care must be taken that estimates of global or national elasticities from past circumstances are applicable to the current market, especially for trade sectors experiencing a rapid metamorphosis through the emergence of synthetic products, new suppliers or new production techniques, or simply trends in the shares of individual importing and exporting countries. In addition, elasticities applicable to a medium-term period of, say, three years pose greater difficulties of statistical method using time-series data, compared with either short-term or longer-term estimates. For these reasons, conclusions on an exchange rate impact would best be formed on the basis of a range of possible elasticities or in relation to some limiting level of elasticity that would make ample allowance for actual conditions.

MATHEMATICAL APPENDIX

Derivation of world trade formulas

Consider the trade equations for a single commodity

M = D(Pm)

X = S(PX)

at equilibrium

M = X = Q

and

Pm · k = Px · r = P

where

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For a total number of n importers of the commodity, then for each importer

Pmi·ki=Pi=1,n,

stating ki in terms of units of the numeraire currency equivalent to one unit of the ith importer’s currency.

Therefore, Pm · k can be considered as

Pmk=Σni=1(Pmikiαi),

where αi = the proportion of world imports taken by country i.

Similarly for the relationship between P, Px, and r.

As P = Px · r

dp = r · dPx + Px · dr

also P = Pm · k

dP = k · dPm + Pm · dk.

Likewise, Px=Pmkr=PrdPx=kdPm+PmdkPxdrr=dPPxdrr

and Pm=Pxrk=PkdPm=rdPx+PxdrPmdkk=dPPmdkk.

From the functions for demand for imports and supply of exports, the world trade elasticities of demand and supply with respect to price are expressed as

ηD=dQQPmdPm(1)

where ηD = price elasticity of world demand for imports and

ηS=dQQPxdPx(2)

ηS = price elasticity of world supply of exports.

From equation (2)

dQQ=ηSdPxPx

This equation expresses the proportional change in quantity traded between the initial and final equilibria associated with a change in export price resulting from, say, a change in exchange rates. In terms of the importer’s currency, the change would be

dQQ=ηS[(kdPm+PmdkPmkdrrr)(rPmk)]
dQQ=ηS(dPmPm+dkkdrr)=ηS(1ηDdQQ+dkkdrr)
Therefore,dQQ(1ηSηD)=ηS(dkkdrr)dQQ=ηS1ηSηD(dkkdrr)=ηDηSηSηD(dkkdrr)(3)10

Alternatively expressed, defining

K = the weighted average percentage change in importers’ exchange rates in terms of the numeraire currency

R = the weighted average percentage change in exporters’ exchange rates in terms of the numeraire currency

ΔQ = percentage change in the volume of world trade.

Then, multiplying equation (3) by 100 gives

ΔQ=ηDηS[KR]ηSηD(4)

Also, taking equation (2), the proportional change in price is

dPxPx=1ηSdQQ

Expressed in terms of the numeraire currency,

(dPPdrr)r(rP)=1ηSdQQdPPdrr=1ηSdQQ;
therefore,dPP=1ηS[ηDηSηSηD(dkkdrr)]+drr=ηSdrrηDdkkηSηD.(5)11

Expressed as a percentage change, where ΔP represents the percentage change in world price in the numeraire currency,

ΔP=ηSRηDKηSηD(6)

The proportional change in value of world trade, in the numeraire currency, is

(P+dP)(Q+dQ)PQPQ,

which for small changes (that is, when dPdQPQ0) is

dQQ+dPP=drrηS(1+ηD)dkkηD(1+ηS)ηSηD.(7)

The percentage change in the value of world trade (ΔV), expressed in the numeraire currency, is

ΔV=RηS(1+ηD)KηD(1+ηS)ηSηD.(8)

Equations (4), (6), and (8) give the percentage change in volume, price, and value of world trade. The equations avoid problems of stating the absolute values of Pm and Px, where there are several importers and exporters, by expressing the formula in terms of percentage changes in exchange rates, to which a weighting system can readily be applied.12 The elasticities of demand for (supply of) imports (exports) are also definable as the weighted average of single country elasticities—or directly estimated world elasticities.

Derivation of formulas for trade of a single country

Following solution of the equations for the changes in world equilibrium price and quantity for a commodity as above, the change in the value of exports of the commodity from a single exporter (the jth) can be determined by reference to the export supply elasticity of the jth exporter (ηsj). Measured in the jth exporter’s currency, the percentage change in world price is the combined change in world price and in the value of the jth exporter’s currency in terms of the numeraire currency; that is,

ΔPi = ΔP - Rj

where Rj is the percentage change in the exporter’s exchange rate, in terms of the numeraire currency.

The percentage change in export quantity will therefore be

ΔQi = ηSjP - Rj).

The percentage change in value of exports—measured in the numeraire currency—is

ΔVj=ΔP+ΔQj=ΔP(1+ηsj)Rjηsj.

Adaptation of the analysis to import changes

The formulas developed above may be used, with the necessary changes in terms, to specify the nature of changes in import expenditures of individual countries. However, where it is hard to apply the commodity-by-commodity approach to estimating import changes because of the problem of delineating markets and establishing prices for manufactured goods, it might then be desirable to base estimates on the country’s demand for imports in general and the corresponding characteristics of world supply. This requires redefinition of the terms in the world equilibrium equations (4), (6), and (8) as follows:

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Since for many primary producing countries the assumption of an infinite world elasticity of supply of exports (ηSw) is not unreasonable, the formulas for changes in import price (P1), quantity (Q1), and value (V1), embodying that assumption, are

ΔP1=KwΔQ1=ηD1[R1Kw]ΔV1=KwηD1[R1Kw].

As before, ΔP1 and ΔV1 are in terms of the numeraire currency.

Méthode simplifiée pour analyser les effets des modifications des taux de change sur les exportations d’un produit primaire

Résumé

Quand, à la suite d’un réalignement général des taux de change des principales monnaies, un pays de production primaire doit prendre une décision au sujet de son taux de change, il doit tenir compte, en ce qui concerne l’effet de cette décision sur les recettes d’exportation, des réactions des autres producteurs ainsi que des modifications des conditions de la demande. S’il veut évaluer l’effet de cette décision sur chaque produit, il pourra déterminer les répercussions d’un grand nombre d’ajustements du taux de change sur la valeur totale du commerce mondial et sur les cours mondiaux en utilisant un cadre d’analyse simplifié où le déplacement de la demande d’importations et de l’offre d’exportations, ainsi que la réaction des prix provoquée par les diverses combinaisons possibles de mesures monétaires, sont calculés sous forme d’agrégat. En effet, les courbes de la demande d’importations et de l’offre d’exportations pour le monde entier ne sont que agrégats des courbes du commerce des différents pays, pondérés suivant la part que ceux-ci occupent dans le commerce mondial. On peut déterminer les variations du commerce mondial et des prix, exprimés en une monnaie de compte donnée, à partir d’hypothèses portant sur les diverses réactions possibles des pays composant l’agrégat en ce qui concerne leur taux de change. Un pays exportateur donné peut considérer que les variations du volume et de la valeur de ses exportations sont déterminées par la réaction, exprimée en sa propre monnaie, de son offre aux variations des cours mondiaux et par les changements éventuels de son offre provoqués par chacun des différents ajustements possibles du taux de change de sa monnaie, tels que nous les avons incorporés dans l’analyse du marché mondial. Ces relations de définition sont présentées sous forme d’équations qui expriment les variations de la valeur des exportations comme un effet net des déplacements pondérés de la demande d’importations et de l’offre d’exportations. Si l’on applique cette analyse à des cas concrets, il faut tenir compte dans les estimations de l’incidence d’un renversement éventuel des effets primaires du réalignement monétaire à mesure que les effets secondaires de la nouvelle structure des taux de change des différentes monnaies se répercutent par l’intermédiaire de l’activité économique et les habitudes de consommation, sur la demande d’importations et l’offre d’exportations; il faut inclure parmi ces effets ceux qui résultent d’un ajustement de l’offre nationale du produit considéré dans les pays importateurs et de sa consommation intérieure dans les pays exportateurs. Il faudrait également que l’évaluation finale des courbes d’exportation et d’importation reflète, spécialement si l’on veut établir des coefficients adéquats d’élasticité, certaines particularités de la commercialisation des différents produits tels que les contingentements, les prix garantis et divers autres engagements en matière de commerce. Cette analyse peut trouver des applications plus générales et être étendue aux dépenses d’importation d’un seul pays, ce qui permet d’évaluer les variations de la balance commerciale.

Método simplificado para analizar los efectos de las modificaciones de los tipos de cambio en las exportaciones de un producto primario

Resumen

Después de una reordenación general de los tipos de cambio de las principales monedas, en la consiguiente decisión de un país de producción primaria sobre su tipo de cambio deben tenerse en cuenta, por el efecto en los ingresos de exportación, las reacciones de los demás productores y los cambios de las condiciones de la demanda. En una evaluación producto por producto, puede especificarse el impacto de un gran número de ajustes de tipos de cambio en el valor y los precios del comercio mundial mediante un marco simplificado de las variaciones de la demanda de importación, la oferta de exportación y las reacciones de los precios agregados, generadas por una combinación de medidas cambiarias. Las funciones de la demanda de importación y de la oferta de exportación mundiales son agregados de las funciones del comercio nacional, con ponderaciones correspondientes a las participaciones en el comercio mundial. La variación del comercio y los precios mundiales, expresada en una moneda como unidad de medida, puede determinarse por los diferentes supuestos en las reacciones de los tipos de cambio de los componentes nacionales. En lo que respecta a cada exportador, las variaciones del volumen y valor de sus exportaciones pueden estudiarse como si estuvieran determinadas por la reacción de la oferta, expresada en su propia moneda, ante la variación del precio mundial, y por las variaciones de la oferta frente a distintas modificaciones de los tipos de cambio de su moneda incorporadas al análisis del mercado mundial. Estas relaciones definitorias se presentan mediante fórmulas que expresan las variaciones resultantes de los valores de exportación como el efecto neto de las variaciones ponderadas de la demanda de importación y de la oferta de exportación. En la aplicación práctica, la estimación tendría que incluir la incidencia probable de la reversión del efecto primario de los ajustes de los tipos de cambio, al ir actuando los efectos secundarios de los diferentes regímenes cambíanos, a través de la actividad económica y las modalidades de consumo, en la demanda de importación y la oferta de exportación, incluso el efecto que resulta del ajuste de la oferta interna del producto primario en los países importadores y del consumo interno en los países exportadores. Las estimaciones finales de las funciones de exportación e importación también tendrían que indicar, especialmente en lo que concierne a los oportunos coeficientes de elasticidad, las características particulares del sistema de comercialización de cada producto, entre otras, los arreglos de cuotas, garantías de precios y otras obligaciones comerciales. En una aplicación más general, el análisis puede ampliarse a los gastos de importación de un sólo país, lo cual permitiría evaluar la modificación de la posición de la balanza comercial.

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Mr. Ridler, Assistant Director in the Research Department, is a graduate of the London School of Economics and the University of Illinois. He was formerly a staff member of the Food and Agriculture Organization and a senior lecturer at Massey University of the Manawatu (New Zealand). He has contributed to various economic journals.

Mr. Yandle, economist in the Commodities Division of the Research Department, is a graduate of Canterbury University (New Zealand), where he also taught.

1

See the final section of the Mathematical Appendix.

2

For example, Sidney Stuart Alexander, “Effects of a Devaluation: A Simplified Synthesis of Elasticities and Absorption Approaches,” The American Economic Review, Vol. XLIX (March 1959), pp. 22-42, and S.C. Tsiang, “The Role of Money in Trade-Balance Stability: Synthesis of the Elasticity and Absorption Approaches,” The American Economic Review, Vol. LI (December 1961), pp. 912-36.

3

As shown in the Mathematical Appendix, the weighting pattern could include additional terms, where a significant net effect would result, for the ratios of the individual country’s import demand (export supply) price elasticities to the world elasticity.

4

See the Mathematical Appendix for derivation of the formulas.

5

For example, a balance of shifts that would result in no price change can be calculated. If the weighted average net appreciation in the relevant importer currencies was 3.7 per cent and the comparable depreciation in exporter currencies 1.5 per cent, there would be no significant change in world price (0.71R + 0.29K = 0.71 (-1.5) + 0.29 (3.7) ≃ 0).

6

The range of hypothetical supply elasticities employed is 0.3-0.5.

7

For example, the elasticity of world primary copper consumption with respect to industrial production (lagged one year) has been estimated in the range of 0.8-1.0. Allowance for the currency change effect on copper usage would thus closely parallel the relation of the change in currencies to the change in industrial production.

8

See H. Vittas, “Effects of Changes in EEC Currency Exchange Rates on Prices, Production, and Trade of Agricultural Commodities in the Community,” Staff Papers, Vol. XIX (1972), pp. 447-67.

9

See Paul S. Armington, “A Theory of Demand for Products Distinguished by Place of Production,” Staff Papers, Vol. XVI (1969), pp. 159-78.

10

This equation can also be derived using equation (1) for the demand elasticity.

11

As with the proportional change in quantity, this equation can be derived from equation (1) for the elasticity of demand.

12

For the general case, it can be shown that if there are n importers, the percentage shift in the world import demand curve (measured in the price direction) is

K=Σni=1KiαiηDiηD

where Ki = percentage change in the exchange rate of the ith importer

αi = the proportion of world imports of the commodity imported by the ith importer in the base period

ηDi = price elasticity of demand for imports of the commodity in the ith country.

Where it can be assumed (as has been done in the text of this exposition) that the ratios ηDiηD will not significantly affect the results, the formula becomes

K=Σni=1Kiαi

Similarly, for m exporters, mutatis mutandis, in the general case

R=Σnj=1RjβjηSjηS

and with the simplifying assumption

R=Σmj=1Rjβj.