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.
See the final section of the Mathematical Appendix.
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.
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.
See the Mathematical Appendix for derivation of the formulas.
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).
The range of hypothetical supply elasticities employed is 0.3-0.5.
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.
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.
See Paul S. Armington, “A Theory of Demand for Products Distinguished by Place of Production,” Staff Papers, Vol. XVI (1969), pp. 159-78.
As with the proportional change in quantity, this equation can be derived from equation (1) for the elasticity of demand.
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
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
Similarly, for m exporters, mutatis mutandis, in the general case
and with the simplifying assumption