Oil Price Changes and Real Exchange Rate Movements Among Industrial Countries
Author: Anne McGuirk
Publication Date:
01 Jan 1983
eISBN:
9781451930610
Language:
English
Keywords:
SP; oil price; exchange rate; balance of payments; price change; energy price; price responsiveness; price of oil; Real exchange rates; Energy prices; Inflation; Oil exports
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The purpose of this paper is to isolate the contribution of the major oil price increases of the 1970s1 to changes in real exchange rates among the seven major industrial countries (Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States) from other developments affecting real exchange rates that occurred during the 1970s and early 1980s. While the study focuses on the effects of oil price increases on real exchange rates, the analysis is equally applicable to oil price declines and to the general question of how a change in the price of a major commodity affects the balance of payments adjustment process among countries.

Abstract

The purpose of this paper is to isolate the contribution of the major oil price increases of the 1970s1 to changes in real exchange rates among the seven major industrial countries (Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States) from other developments affecting real exchange rates that occurred during the 1970s and early 1980s. While the study focuses on the effects of oil price increases on real exchange rates, the analysis is equally applicable to oil price declines and to the general question of how a change in the price of a major commodity affects the balance of payments adjustment process among countries.

The purpose of this paper is to isolate the contribution of the major oil price increases of the 1970s1 to changes in real exchange rates among the seven major industrial countries (Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States) from other developments affecting real exchange rates that occurred during the 1970s and early 1980s. While the study focuses on the effects of oil price increases on real exchange rates, the analysis is equally applicable to oil price declines and to the general question of how a change in the price of a major commodity affects the balance of payments adjustment process among countries.

Initially, higher oil prices affect the balance of payments positions of industrial countries directly through their effects on trade in energy products and indirectly through increased exports to and investment flows from the oil exporting countries. In the longer run, however, the export earnings of the oil exporting countries tend to be fully absorbed—that is, spent on goods and services from abroad. On a net basis, current investment flows from those countries then cease and would exert no further influence on real exchange rates. The stock of foreign financial assets accumulated by the oil exporting countries during the adjustment period is sizable, but because capital is assumed to flow among countries so as to equalize the risk-adjusted rates of return on investment, any portfolio preferences of the oil exporting countries are counterbalanced by other capital flows among countries. Thus, the major determinants of the longer-run effects of higher oil prices on industrial countries’ net balance of payments positions are the changes in their trade balances in energy products and the increases in their exports to the oil exporting countries that are attributable to higher oil prices. The required change in a country’s exchange rate depends on the size and direction of the net change in its external position that is attributable to higher oil prices relative to that of other countries. In this paper, these net balance of payments effects are first estimated for each of the major industrial countries based on certain assumptions about economic growth, real energy prices, and the trade preferences of the oil exporting countries. The multilateral exchange rate model (MERM) is then used to solve for the changes in real exchange rates that would have been necessary to offset the differential effects of higher oil prices on countries’ external positions.

Section I of this paper derives the net effects of higher oil prices on countries’ external positions by conducting hypothetical simulations in which exchange rates are held constant. Section II gives an overview of the structure of the MERM and a description of how the model is used to solve for the required changes in real exchange rates among the major industrial countries. Section III presents the conclusions.

I. Assumptions and Methods Used to Estimate Effects of Higher Oil Prices on the Balance of Payments

A number of assumptions need to be made to isolate the effects of higher oil prices on the external positions of each of the major industrial countries. First, it is necessary to choose a period of analysis that is sufficiently long to allow for lags in the adjustment of energy production and consumption in these countries to higher oil prices and also for the lagged effects on the absorptive capacity of the oil exporting countries to work their way through the economic system. To account for these lags, projections are made of changes in the net external positions of the major industrial countries that would occur by 1985 as a result of the oil price increases of 1973–74 and 1979–80, holding other factors, including real exchange rates, constant.

The projections to 1985 may not extend far enough into the future to allow for complete adjustment by the industrial countries to the large changes in real energy prices that have occurred (especially those resulting from the oil price increases in 1979–80).2 However, it is reasonable to assume that they extend far enough to allow for complete adjustment by the oil exporting countries as a group to the changes in their export receipts. Table 1 shows the evolution of the current account of the oil exporting countries from 1973 to 1982.3 After the oil price increases in 1973–74, the current account surplus of this group peaked in 1974 and fell to near balance by 1978; the second round of increases (in 1979–80) was accompanied by a similar adjustment of their current account surplus.

Table 1.

Oil Exporting Countries: Balance of Payments on Current Account, 1973–82

(In billions of U.S. dollars)

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Source: International Monetary Fund, World Economic Outlook: A Survey by the Staff of the International Monetary Fund, Occasional Paper No. 21 (Washington, May 1983).

The data presented in Table 1 illustrate the fact that the decline in the surplus of the oil exporting countries after each major episode of oil price increases has been quite rapid. When the surplus on energy trade of those countries is fully absorbed, the predominant factors that influence real exchange rates among industrial countries are (1) the relative net energy position (the balance of trade in energy) of each country and (2) the effects of the additional spending by oil exporting countries on each country’s exports. A deterioration in a country’s net energy position owing to higher oil prices will be offset, to some extent, by its share in the increased exports of goods and services to oil exporting countries, other factors being held constant. The remaining “gap” can be offset by a change in the real exchange rate that would improve the country’s competitive position vis-à-vis other industrial countries.

The method used to isolate the effects of higher oil prices on the net external position of each of the major industrial countries is to project each country’s external balance to 1985 based on alternative oil price assumptions, holding exchange rates and all other factors unchanged. In the first set of projections, the real price of oil is held constant at its 1972 level. In two alternative sets of projections, the changes in the real price of oil that actually took place over the two periods 1972–78 and 1972–80 are taken into account. The differences between the projections based on real oil prices in 1972 and those based on either of the two alternative real oil price assumptions represent the changes in countries’ external positions that are attributable solely to the increase in the price of oil.

In the projections based on both the constant 1972 real oil prices and higher prices, the rates of growth of real economic activity in each industrial country are assumed to be the same. This simplifying assumption helps to isolate the direct effects of higher oil prices on the balance of payments, by abstracting from the feedback effects of oil price changes onto other variables that, in turn, affect the balance of payments.

Of course, the large oil price increases of 1973–74 and 1979–80 have affected the rate of growth of economic activity in the industrial countries. The two most important consequences are the direct effect of higher oil prices on output and the indirect effect on output resulting from restrictive stabilization policies that were designed to reduce the inflationary effects of higher oil prices. The direct effect on output results from the increase in the relative price of one of the factors of production, namely, energy. There is controversy in the literature about the size and duration of this effect.4 In general, it will depend on the share of energy in the cost of production (about 4 percent in the United States), the substitutability of other factors of production for energy, and the scope for shifting resources to the energy producing sector and to less energy-intensive sectors. In studies that have measured the direct effect of higher energy prices on output, the results indicate that this effect is not large. For example, Pindyck (1980, p. 116) estimates that if real energy prices increased at an annual rate of 5 percent for 30 years, assuming no net energy/capital substitution, real economic growth in the United States would be reduced by about 0.2 percent a year. Thus, the direct effect of higher production costs on economic growth is likely to be small, compared with the effects of the restrictive demand-management policies pursued by a number of the major industrial countries following the oil price increases in 1973–74 and 1979–80. To the extent that higher energy prices have affected economic growth in the major industrial countries to a similar degree, the estimated real exchange rate changes derived later in this paper will not be very much affected.

In the analysis that follows, the change in each country’s net external position that is attributable to higher oil prices is divided into its two components: (1) the change in a country’s net energy position (defined as the change in the balance of trade in energy products);5 and (2) the increase in exports to the oil exporting countries, which—assuming that factors other than oil prices are held constant—is estimated on the basis of each country’s share in exports to the oil exporting countries prior to the price increases in 1973–74. Estimates of the effects of higher oil prices on countries’ net energy positions are derived in the subsection, projections of energy balances to 1985. In the subsection, projections of changes in countries’ net external positions attributable to higher oil prices, these estimates are combined with the projected increases in countries’ exports to the oil exporting countries.

projections of energy balances to 1985

The framework used to estimate the effects of higher oil prices on countries’ energy balances is that of the homogeneous goods model.6 In this model, imports or exports of energy products are determined residually as the difference between the domestic demand for and supply of energy. A country is a net importer (exporter) of energy if domestic energy demand exceeds (is less than) domestic energy supply. The projections of domestic energy demand and supply that take the oil price increases into account are based on estimates by country experts published by the International Energy Agency (IEA, 1982), where available, or on estimates derived on the basis of income and price elasticities. An examination of the pre-1973 trends in energy demand and supply provides the motivation for the methods used to derive the projections based on the 1972 real price of oil. These projections rely mainly on estimates of demand derived from income elasticities and real growth of gross domestic product (GDP), holding real energy prices constant at their 1972 levels, and on plausible assumptions about what energy supply would have been in the absence of higher real oil prices.

Historical trends in energy demand and supply

The projections that hold the real price of oil constant at its 1972 level are intended to answer the hypothetical question of what nominal energy balances would be by 1985 if the real price of oil had not risen sharply after 1972. For this purpose, it is useful to take a look at the trends in the demand for and supply of energy prior to the first oil price shock and the history of estimates of the effects of higher oil prices on energy demand and supply.

During the 1950s and 1960s, world oil production increased at an annual rate of 6 percent to 7 percent, while the real price of oil fell gradually from the early 1950s onward, reaching its lowest level in 1970. Oil market conditions began to tighten in the early 1970s; between 1970 and 1972, the price of Saudi Arabian crude oil rose by 46 percent, from $1.30 a barrel in 1970 to $1.90 in 1972—its highest level since 1956. At that time, however, projections of oil demand were based either on no further change in the real price of oil or on only small increases.

As a consequence of the growth of relatively cheaper oil supplies, substantial substitution away from other fuels, especially coal, took place during the 1960s. These developments were reflected in the trends in the demand for energy and, in particular, for oil in the individual industrial countries. Table 2 shows, for the major industrial countries, the elasticities of total energy consumption and oil consumption with respect to the growth of GDP for the period 1960–73. With the exception of Italy and the United Kingdom, the elasticities of total energy consumption are close to unity. The degree of substitution away from other energy sources into oil that occurred during the 1960s in the European countries and Japan is apparent from the income elasticities of oil consumption, which are nearly two to three times larger than the elasticity of total energy.7

Table 2.

Major Industrial Countries: Elasticities of Consumption of Energy and Oil with Respect to Real Growth of Gross Domestic Product (GDP), Unadjusted for Relative Price Changes, 1960–731

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Sources: International Energy Agency (IEA), Energy Policies and Programmes of IEA Countries: 1980 Review (Paris, 1981) and Energy Balances of OECD Countries (Paris, various issues); International Monetary Fund, International Financial Statistics (Washington, various issues).

The average annual growth of energy consumption or oil consumption in volume terms divided by the average annual growth of real GDP.

The pre-1973 trends in the demand for and supply of energy possibly influenced the estimates of the response to higher oil prices that were made after the first oil price increases in 1973–74. The available evidence suggests that these estimates tended to underestimate the price response on the demand side and to overestimate it on the supply side. In a survey of energy projections to 1985, Brodman and Hamilton (1979) reviewed 78 studies prepared during the period 1969 through mid-1978. A study by Deagle, Mossavar-Rahmani, and Huff (1981) provides an update of the Brodman-Hamilton survey through early 1980. In both these surveys, the authors tabulated the projections of energy demand and supply chronologically to see if patterns emerged in the projections over time. Selected results from the study by Deagle, Mossavar-Rahmani, and Huff, which covers more recent projections, are summarized in Table 3. Table 3A shows that there has been a steady downward revision over time in the two main factors that determine energy demand—the growth of real GDP and the elasticity of demand for energy with respect to real GDP (unadjusted for price changes). These downward revisions explain most of the differences in projections of energy demand. The downward revisions in the energy/GDP elasticities indicate that the demand response to price increases has been stronger than expected initially.

Table 3.

Organization for Economic Cooperation and Development (OECD): Selected Averages of Energy Projections, 1972–85

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Unadjusted for price changes.

Million barrels per day of oil equivalent.

Million barrels per day.

Gigawatts of electricity.

1970–73.

On the supply side, the historical projections displayed the opposite pattern (Table 3B). The highest supply estimates were obtained during the period immediately after the oil price increases in 1973–74, reflecting price elasticity optimism. Thereafter, supply estimates were revised downward until they fell below the estimates of supply that had been made prior to the price increases. The two major sources of error in the supply projections were overestimates of the supply of oil in the United States and of nuclear energy in almost all countries. Downward revisions for the production of oil and natural gas liquids (NGL) in the United States accounted for half of the revision for such production in the OECD, and the expected growth of nuclear capacity did not materialize on the scale previously envisioned, owing mainly to environmental concerns and the long lead times required to install nuclear plants.

It is not surprising that the supply response has been less than expected initially. One factor contributing to the slow response after the oil price increases in 1973–74 was the prevalence of energy price controls, especially in the United States and Canada, some of which are still in existence. More generally, for an exhaustible resource such as oil, the fields that are the easiest to find, the most productive, and the least costly to develop will be exploited first, followed by higher-cost (hence, marginal) fields; that is, there are diminishing returns to exploration even at much higher real oil prices. For example, despite the fact that drilling rates increased significantly after the price increases in 1973–74, reflecting the behavioral response to higher prices, the increase in discovered resources slowed down. Discoveries, which had averaged about 68 billion barrels per decade for the 1950s and 1960s, fell to 35 million barrels in the 1970s. The rate of discovery of “super giant” fields was more than ten fields per decade in the 1950s and 1960s; during the 1970s, only two super giant fields were discovered (both in Mexico). Even after discovery of exploitable reserves, it takes from 8 to 12 years to bring new oilfields into production. Similarly, there are long lead times from the decision to build a nuclear plant, or to exploit coal reserves, and the actual production of energy on a significant scale.

In retrospect, it is safe to say that earlier projections of both the magnitude and timing of the price response of energy supply were overestimated. It now appears that the time lags between price increases and output responses are quite long. Further, since the rate of growth of actual energy supplies in the major industrial countries (except the United Kingdom) has fallen below pre-1973 historical trends, it is reasonable to expect that the deceleration in energy production would have been even greater if real energy prices had remained unchanged at their 1972 levels. These considerations underlie the assumptions employed to derive projections of energy supply based on alternative oil price assumptions. For 1972 real energy prices, energy production in the major industrial countries is assumed to remain close to the levels achieved in the first half of the 1970s. For the United States and the United Kingdom, allowance is made for the level of production from the North Slope of Alaska and the North Sea that was planned prior to the oil price increases in 1973–74. Estimates of the energy supply response, taking into account oil price increases through 1980, rely on the projections submitted by country experts to the IEA for its 1981 review. Taking into account the long time lags on the supply side, it is assumed that most of the effects of higher oil prices on energy supply by 1985 are in response to the oil price increases in 1973–74.

On the demand side, for the historical period 1960–73, the elasticities of demand for energy with respect to the growth of GDP shown in column 1 of Table 2 reflect the growth of economic activity as well as the changes in the relative price of energy. To project energy demand under the assumption of no change in the real price of energy, estimates of the separate effects of changes in economic growth and energy prices on energy demand are necessary. These estimates are derived in the next subsection, based on the results of estimated equations that explain the demand for energy in terms of the growth of real GDP and changes in the real price of energy. For the simulation based on constant 1972 real energy prices, the demand for energy is then projected on the basis of income elasticities and rates of growth of real GDP. These projections assume that oil exporters would have been willing and able to supply oil at the rate demanded without an increase in the real price of oil. It is most likely, however, that underlying market forces would have eventually led to an increase in prices; therefore, the constant real oil price assumption is meant to serve only as an analytical device.

Empirical estimates of income and price elasticities of energy demand

As just indicated, estimates of the separate effects of changes in economic growth and relative energy prices on the demand for energy are needed to derive projections of energy balances that are based on different oil price assumptions. Chart 1, which shows the real demand for primary energy, the rate of growth of real GDP, and the real price of energy8 for each of the seven major industrial countries, illustrates the difficulties inherent in estimating these separate effects. Prior to 1970, the real price of energy was declining and real GDP was rising steadily in all the countries. Both factors contributed to an increase in the demand for energy. Similarly, after the two oil price increases (in 1973–74 and 1979–80), the increase in the real price of energy coincided with a decline in economic growth; again, both factors contributed to the reduced demand for energy. In econometric studies based on time-series analysis, the correlation between the income and relative price variables makes it difficult to measure the separate effects of each on the demand for energy.9 The estimation problem is complicated further by the large and abrupt changes in real energy prices, the relatively short sample period (from the late 1950s or early 1960s to the late 1970s) on which most available estimates are based, the need to estimate long lags, and the fact that the adjustment to higher energy prices is. still incomplete. Cross-section studies alleviate these problems to some degree but not entirely, since, historically, countries with relatively high income levels (the United States and Canada, for example) have tended to have low energy price levels. Further, elasticities derived from cross-section studies are long-run elasticities and, therefore, give no indication of the length of the period of adjustment, or of differing propensities to consume energy when countries are not in long-run equilibrium.

Chart 1.
Chart 1.
Chart 1.

Major Industrial Countries: Factors Affecting Real Demand for Energy, 1960–80

(Indices, 1970 = 1.0)

Citation: IMF Staff Papers 1983, 004; 10.5089/9781451930610.024.A007

These problems of estimation suggest that econometric estimates of income and price elasticities in energy demand equations should be interpreted with caution. What is important in the context of this study is that the relationships of the income elasticities among countries be appropriate. For the major industrial countries, Table 4 shows the annual rates of growth of demand for total primary energy, real GDP, and real energy prices for the period 1960–72, along with the energy/GDP elasticities (unadjusted for relative price changes). Over a period of declining real energy prices, the unadjusted energy/GDP elasticities would tend to be larger than those adjusted for relative price changes. The table shows that the United States and the United Kingdom experienced the least decline in real energy prices over the period, followed by somewhat larger declines in prices in Canada, France, and the Federal Republic of Germany and substantial declines in Italy and Japan.

Table 4.

Major Industrial Countries: Annual Average Rates of Growth of Demand for Energy, Real Gross Domestic Product (GDP), Real Price of Energy, and Energy/GDP Elasticities, 1960–72

(In percent)

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unadjusted for relative price changes.

Figures are for the period 1960–73.

On the basis of the data shown in Table 4, it would be reasonable to expect the energy/GDP elasticities, when adjusted for relative price changes, to be less than or equal to those shown in column 4. Since Italy and Japan experienced the largest declines in real energy prices, their adjusted elasticities may be significantly smaller than those shown in Table 4.

In terms of rank, Italy might be expected to have the highest adjusted energy/GDP elasticity, followed by the United States, Canada, the Federal Republic of Germany, France, Japan, and the United Kingdom. The econometric estimates presented in Appendix I and summarized in Table 5 generally conform to the expected results with two exceptions. First, the estimated energy/GDP elasticities for the United States and France are higher than expected; second, the energy/GDP elasticity for France is higher than that for Canada and Germany. The higher than expected elasticities for the United States and France may be attributed to the relatively high degree of correlation between real GDP and real energy prices in these two countries over the period of estimation. (See column 6 of Table 5). When multicollinearity is present, the log-linear functional form used to estimate the income and price elasticities would tend to attribute more explanatory power to the variable with the greatest variability over the estimation period—real GDP in this case. Column 7 of Table 5 shows the energy/GDP elasticities that are used to project energy demand. The elasticity for the United States is assumed to be slightly less than its unadjusted value, while that for France is assumed to be one—making it comparable to those for Germany and Canada. The elasticities for the remaining countries are approximately their estimated values.

Table 5.

Major Industrial Countries: Estimates of Energy/GDP Elasticities, 1966–801

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Numbers in parentheses are t-statistics.

The price coefficients were estimated using polynomial distributed lags of up to six years, except for the United Kingdom, for which a simple one-year lag was used. See Appendix I for a complete description of the estimated equations.

Projections of energy balances to 1985 at constant real exchange rates

The changes in the energy balances of the major industrial countries that are attributable to higher oil prices are derived for two cases—in the first, taking into account changes in real oil prices through 1978, while in the second, taking into account changes through 1980. In both cases, the first step is to estimate what energy balances would have been by 1985, at constant real exchange rates, based on three alternative assumptions: (1) 1972 real oil prices, (2) 1978 real oil prices, and (3) 1980 real oil prices.

The rates of growth of real GDP upon which the projections of energy balances are based are the same for each oil price assumption. These growth rates are presented in Table 6. The relatively weak growth performance for the period 1980–85 reflects slower growth and/or recession during the period 1980–82, followed by a return to the average annual rates of growth that prevailed during the period 1972–78. Projections of energy balances by 1985, assuming a constant 1972 real price of oil, are derived in Table 7. Energy demand by 1985 is estimated using the growth rates assumed in Table 6 and the energy/GDP elasticities shown in column 7 of Table 5.

Table 6.

Major Industrial Countries: Annual Average Change in Actual and Projected Rates of Growth of Real Gross Domestic Product/Gross National Product, 1972–78, 1979, 1980, 1981, and 1980–85

(In percent)

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Table 7.

Major Industrial Countries: Projections of Energy Balances to 1985, Based on Constant 1972 Real Oil Prices

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Million tons of oil equivalent.

The 1972 price of oil measured in 1985 prices is $6.44 per barrel and is defined as the 1972 price of oil ($2.29 per barrel) inflated to 1985 prices using the change in the export unit value for manufactures of the industrial countries. Converted to U.S. dollars per ton, the price is $47.35.

In the constant 1972 real oil price case, energy production for most of the major industrial countries is assumed to remain close to the levels achieved in the first half of the 1970s. For the United States and the United Kingdom, account is taken of the level of energy production from the North Slope of Alaska and the North Sea that was expected prior to the oil price increases in 1973–74.10In the United States, the additional production of oil from Alaska offsets the decline in production in the lower 48 States, which is assumed to stabilize at its 1974 level. For the United Kingdom, the planned development of the North Sea oil accounts for a doubling of energy production, compared with its level in the early 1970s. To the extent that energy production would have declined significantly below the levels assumed here (because of disincentives to exploration and development), the exchange rate changes needed to offset the effects of higher real oil prices would be smaller than those estimated in what follows.

The difference between the supply of and demand for domestic energy represents the amount of net imports of energy, which is shown in column 6 of Table 7, expressed in millions of tons of oil equivalent. This amount is valued at the world market price of oil, since oil accounts for most of net energy imports and since the export prices of alternative fuels will tend to rise to levels equivalent to that of oil. Column 7 of Table 7 shows the projections of net energy imports measured in 1985 U.S. dollars, or nominal energy balances, based on the assumption of constant 1972 real oil prices.

Table 8 summarizes the projections of energy balances based on the two alternative higher oil price assumptions. Table 8B shows the projections of energy demand and supply by 1985 taking into account the oil price increases through 1980. These are based on the projections published in the IEA review for 1981 except for France, for which projections provided by the Commissariat général du Plan are used. The economic growth assumptions underlying the IEA projections are higher than those shown in Table 6; therefore, the IEA projections of energy demand have been adjusted downward, based on the differences in growth rates using the assumed energy/GDP elasticities shown in column 7 of Table 5. No adjustment has been made to the IEA energy supply projections. To the extent that domestic energy supply is related to economic activity, the supply projections may be too high. However, the levels of energy supply assumed for 1972 real oil prices are probably optimistic and would tend to offset any upward bias in the unadjusted IEA supply projections.

Table 8.

Major Industrial Countries: Projections of Energy Balances to 1985, Based on 1978 and 1980 Real Oil Prices

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Million tons of oil equivalent.

The implicit price elasticity is calculated by dividing the change in logs of energy demand that is due to higher energy prices (the log of col. 4 in Table 8B minus the log of col. 4 in Table 7) by the change in logs in real energy prices. Only 75 percent of the effect on energy demand of the increase in real energy prices from 1978 to 1980 is assumed to occur by 1985 for the United States, the Federal Republic of Germany, and Italy.

The 1978 price of oil measured in 1985 prices is $17.93 per barrel and is defined as the 1978 price of oil ($12.83 per barrel) inflated to 1985 prices using the change in the export unit value for manufactures of the industrial countries. Converted to dollars per ton, the price is $131.80.

The 1980 price of oil was $30.92 per barrel. Inflated to 1985 prices using the export unit value for manufactures of industrial countries, it is $34.00 per barrel ($249.90 per ton).

In Table 8B, the implicit price elasticities of demand shown in column 3 are derived from the change in energy demand compared with the change in the real price of energy. The change in energy demand that is due to higher oil prices, measured in real terms, is the difference between the demand for energy based on the 1980 real price of oil and that based on the 1972 real price of oil. In calculating the relevant change in real energy prices, it has been assumed that the effects on energy demand of 100 percent of the increases in real energy prices that occurred prior to the end of 1978 would have occurred by 1985. The estimated distributed lag effects of changes in real energy prices on energy demand shown in Appendix I indicate that the lags for several countries—namely, the United States, the Federal Republic of Germany, and Italy—are longer than five years. For these countries, it has been assumed that the demand effects of only 75 percent of the real energy price increases from 1978 to 1980 would have occurred by 1985. For Canada, there was little change in the real price of energy from 1978 to 1980; however, the IEA projections take into account the Government’s policy of gradually increasing the domestic price of oil to between 75 and 100 percent of the world market price, depending on whether the oil is obtained from “old” or “new” wells. To account for the effect of this policy, it was assumed that 30 percent of the total reduction in energy demand by 1985 for Canada (shown in Table 8B) results from the increase in real energy prices taking place after 1980. The implicit price elasticities of demand derived on the basis of the foregoing assumptions are more or less in line with the estimated price elasticities shown in Table 5, and they have been used to estimate energy demand by 1985 based on the 1978 real price of energy. These estimates are shown in Table 8A.

The energy supply projections in Table 8A have been derived based on the simplifying assumption that 75 percent of the difference in domestic energy supply, based on 1980 real oil prices compared with the energy supply based on the 1972 real price, can be attributed to the oil price increases in 1973–74.11 For the projections based on higher oil prices, net energy imports—measured in millions of tons of oil equivalent (column 6)—are converted to nominal energy balances by multiplying net energy imports by the 1978 or 1980 real price of oil expressed in 1985 dollars. These nominal energy balances are shown in column 7 of Table 8.

projections of changes in countries’ net external positions attributable to higher oil prices

The differences between the nominal energy balances based on the 1978 (or 1980) real price of oil and those based on the 1972 real price are estimates of the changes in countries’ energy balances owing to higher oil prices at unchanged real exchange rates. These calculations are shown in Table 9, columns 1, 2, and 3. The sum of column 3 (the total change in energy balances of industrial countries attributable to higher oil prices) represents the change in export earnings of the oil exporting countries resulting from the change in the value of energy exports to the industrial countries. It is assumed that by 1985, all the increased export earnings of the oil exporting countries will be spent on goods and services from abroad—specifically, on the imports of goods and services from the industrial countries. These projected increases in imports are allocated to the industrial countries based on the share of each country’s exports to the oil exporting countries in the total imports of this group from industrial countries. These shares are derived from trade patterns that existed in 197212 (shown in parentheses next to column 4), prior to any relative price changes that may have resulted from the oil price increases. In other words, the increase in the export earnings of the oil exporting countries is distributed to the industrial countries based on the pattern of trade in 1972. The distribution to each country represents the additional amount that would have been exported to the oil exporting countries at unchanged real exchange rates.

Table 9.

Industrial Countries: Projections of Net Effects of Higher Oil Prices on Countries’ External Positions by 1985, Assuming 1978 Real Oil Prices

(In millions of U.S. dollars)

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Share of country’s exports in the imports of the oil exporting countries from the industrial countries, based on 1972 trade flows.

What remains after distribution of the increased export earnings of the oil exporting countries is the estimated net effect on countries’ trade balances of higher oil prices (shown in column 5). In the next section, the multilateral exchange rate model is used to solve for the changes in real exchange rates among the industrial countries that would offset these trade balance changes, other things being equal. Table 10 details similar calculations for the projections based on 1980 real oil prices.

Table 10.

Industrial Countries: Projections of Net Effects of Higher Oil Prices on Countries’ External Positions by 1985, Assuming 1980 Real Oil Prices

(In millions of U.S. dollars)

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Share of country’s exports in the imports of the oil exporting countries from the industrial countries, based on 1972 trade flows.

II. Application of Multilateral Exchange Rate Model (MERM) to Estimation of Real Exchange Rate Changes

The net effect of higher oil prices on countries’ trade balances that remains after accounting for expected exports to the oil exporting countries would need to be offset in the longer run by equal but opposite changes in countries’ trade balances as a result of a real exchange rate realignment. To estimate this realignment of real exchange rates requires a multicountry model that encompasses the trading relationships among countries and allows for shifts in the structure of production and demand between traded and nontraded goods. Further, at least two traded goods need to be defined—energy and non-energy. The offsetting changes in countries’ trade balances would result from changes in countries’ competitive positions vis-à-vis each other in both bilateral and third markets and from changes in energy balances induced by exchange rate changes. Since the latter effects are relatively small, the predominant effects of the real exchange rate realignment would be on non-energy transactions.

The MERM was designed for the purpose of estimating the effects of exchange rate changes on trade balances after a period of several years. If a consistent set of desired changes in countries’ trade balances is known, the model can also be used to estimate the exchange rate realignment that would bring about these trade balance changes. A full description of the MERM is given in Artus and McGuirk (1981). Here, the main features of the model are summarized with emphasis on applicability to the present problem. A schematic representation of the equations of the model is provided for reference in Appendix II.

Six commodity groups are distinguished in the MERM. For each commodity, a consistent set of supply and demand equations incorporating the input/output structure of each country is specified. Based on the Standard International Trade Classification (SITC), the commodity groups are as follows:

  • (1) Agricultural commodities (SITC 0 + 1)

  • (2) Raw materials (SITC 2 + 4)

  • (3) Mineral fuels (SITC 3)

  • (4) Semifinished manufactures (SITC 5 + 6)

  • (5) Finished manufactures (SITC 7 + 8 + 9)

  • (6) Nontraded commodities (commodities and services not traded)

Each good satisfies both intermediate and final demand, the amount demanded depending on activity variables and relative prices.

The demand system distinguishes between goods and products. A product is a good produced by a particular country. For example, German-finished manufactures and Japanese-finished manufactures are the same kind of good, but two different products. The model includes 18 industrial countries and two regional groups of countries.13 The most important relative price effects on the demand side are those pertaining to price changes among products of the same kind of good. For example, a depreciation of the exchange rate of France would reduce the price of French cars relative to foreign-made cars in both the French domestic market and foreign markets. Other factors remaining unchanged, this depreciation would increase the demand for French cars. More generally, changes in product prices shift demands for a particular good from higher-priced suppliers to lower-priced suppliers. The other important relative price effect results from the change in the prices of traded goods versus those of nontraded goods. Exchange rate depreciation (appreciation) raises (lowers) the prices of traded goods, shifting domestic demand toward non-traded (traded) goods and domestic supply toward traded (non-traded) goods.

The supply of each good that is produced by each country is simply a function of the prices of the six goods, relative to their costs of production in the market of the producing country. The feedback effects of exchange rate changes onto domestic costs and prices are fully accounted for in the model. The magnitude of these feedback effects determines the change in the real exchange rate that is associated with any nominal exchange rate change. Since the present analysis focuses on the effect of higher oil prices on real exchange rates, the model is solved for the real exchange rate changes that will offset the net trade balance effects of higher oil prices.

The model is closed by imposing the market equilibrium condition that the supply of and demand for each product must be equal, and by constraining real GDP in each country to be constant. The latter constraint permits abstraction from price level changes among countries that result from changes in real GDP. Since real GDP is held constant, the effect of relative price changes on the supply side is to shift resources from one sector to another, primarily between the nontraded and traded goods sectors in this application.

In the MERM, changes in real exchange rates will affect mainly competitiveness in trade in manufactures. The size of the required realignment of real exchange rates will depend to a large extent on the responsiveness of trade flows in manufactures to relative price changes. Table 11 shows the aggregate import and export price elasticities used in the MERM. These elasticities pertain to an adjustment period of about three years and may underestimate the price response over the longer period considered here. Few empirical estimates of price elasticities in international trade with lags longer than three years exist; and, in those that do exist, the longer-run price responses are not out of line with the elasticities shown in Table 11.14 To the extent that these elasticities are too small for the length of the adjustment period considered, the estimated realignment of real exchange rates will be too large. That is, the more responsive that trade flows are to relative price changes, the smaller will be the exchange rate changes required to offset an external disturbance.

Table 11.

Aggregate Foreign Trade Price Elasticities Used in the MERM

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The final estimates of changes in trade balances owing to the oil price increases since 1972 (shown in column 5 of Tables 9 and 10) purport to measure the effects of higher oil prices on countries’ trade balances, other things remaining the same. In particular, industrial countries’ competitive positions vis-à-vis each other are held constant, as are real interest rate differentials. Pressures on real exchange rates arise from two sources in this exercise. First, assuming that countries were initially in equilibrium, the oil price increases disturb that equilibrium by the amount measured in column 3 of Tables 9 and 10, the effect on energy balances. Second, at unchanged relative prices, the pressure on real exchange rates from the effects on energy balances is either reinforced or offset by countries’ expected exports to oil exporting countries. For example, the United Kingdom experiences upward pressure on its real exchange both because of its favorable energy balance and because of its increased exports to the oil exporting countries. At unchanged relative prices, the demand for exports from the United Kingdom would be too large. Appreciation of its real exchange rate vis-à-vis other industrial countries changes its competitive position in both industrial markets and markets in which the United Kingdom competes with other industrial countries for exports, namely, the markets of the oil exporting countries and the rest of the world. The changes in the estimated real exchange rates are the amounts by which real exchange rates would have to change to offset the net changes in countries’ external positions that are due to higher oil prices by increased exports or imports of goods. These estimates will be too large to the extent that service flows, which are not included in the MERM, are sensitive to real exchange rate changes.

Table 12 presents the projected net effects on countries’ trade balances of higher real oil prices based on the two oil price assumptions (reproduced from Table 9 and 10). The projections based on 1978 real oil prices (column 1) correspond roughly to the net trade balance effects that are attributable to the oil price increases in 1973–74, while those based on 1980 prices (column 4) correspond to the combined effects of the price increases in 1973–74 and 1979–80. As already noted, the required realignment of real exchange rates among the industrial countries depends on the relative size of these net trade balance effects. For example, in both sets of projections, Japan experiences a much larger net deterioration in its trade balance than do other countries. Consequently, a relatively large depreciation by Japan would be needed to offset the effects of higher oil prices on its external position, other factors remaining unchanged. Similarly, the United Kingdom would require a large real appreciation.

Table 12.

Major Industrial Countries: Projected Realignment of Real Exchange Rates Needed to Offset Differential Effects of Higher Oil Prices on Countries’ External Positions, Based on 1978 and 1980 Real Oil Prices

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Estimates are derived from the multilateral exchange rate model and are measured vis-à-vis the U.S. dollar. They represent the change in real exchange rates (or in countries’ competitive positions) that would, after a period of several years, have equal but opposite trade balance effects as those shown in cols. (1) and (4). Estimates are rounded to the nearest integer.

The change in the real effective exchange rate is defined as the unilateral real exchange rate change that would have the same trade balance effect as the actual set of estimated real exchange rate changes.

Estimates of the exchange rate realignment that is needed to offset the changes in countries’ trade balances attributable to higher oil prices are derived from the MERM and are shown in columns 2 and 5 of Table 12; corresponding changes in real effective exchange rates are shown in columns 3 and 6. These estimates take into account all the bilateral and third-market effects of changes in relative prices on countries’ trade balances, but they hold constant other factors that may affect real exchange rates. As such, they represent the realignment of real exchange rates that are attributable solely to higher oil prices.

The results of the simulations based on the 1978 real price of oil indicate that Canada and the United Kingdom would need relatively large real appreciations vis-à-vis the United States and that Japan would need a large depreciation. Only small changes in real exchange rates are estimated for the European countries. Canada appreciates relative to the United States and the European countries because its favorable energy position more than offsets its relatively weak initial trading position with the oil producing countries. As previously explained, the United Kingdom benefits both from its strong energy position and its relatively large share in the imports of the oil exporting countries. By contrast, Japan, which has the second largest share in the imports of the oil exporting countries, is adversely affected by the relatively large deterioration in its energy balance.

In the simulations based on 1978 real oil prices, the value of the U.S. dollar does not change much in relation to the currencies of France and the Federal Republic of Germany, because these countries experience modest net deteriorations in their trade balances of the same order of magnitude as that of the United States. The simulations based on 1980 real oil prices leave Canada, Japan, and the United Kingdom in about the same relative positions, but they give quite a different result for the position of the U.S. dollar. In this simulation, the net effect of higher oil prices on the U.S. trade balance is positive and results from the fact that the domestic energy supply as a proportion of total energy demand is much larger in the United States than in the other oil importing countries. In these circumstances, a similar percentage increase in supply and decrease in demand results in a proportionately larger reduction in net energy imports for the United States, compared with countries in which domestic energy represents a smaller share of the total energy supply. Consequently, the European countries depreciate significantly vis-à-vis the United States. Italy depreciates somewhat more than France and Germany, because it has a relatively smaller share in the increased exports to the oil exporting countries. Because the European countries depreciate by a significant amount vis-à-vis the United States, Japan has to depreciate relatively more vis-à-vis the United States than in the 1978 real oil price simulation to achieve the same competitive effect.

The foregoing results are no doubt subject to a large margin of error because of the uncertainties regarding developments in energy supply and demand, the validity of the assumptions and parameters underlying the calculations, and the focus on merchandise trade. A price responsiveness of energy demand or supply greater than that assumed in the calculations presented here would tend to reduce the required change in real exchange rates needed to offset the effects of higher oil prices on countries’ external positions. Larger import and export price elasticities for traded goods would also reduce the required change in real exchange rates, as would a significant price responsiveness of trade in services.

III. Conclusions

In this paper an attempt has been made to estimate the real exchange rate changes among industrial countries that would be needed to offset the differential effects of the oil price increases of the 1970s on countries’ balance of payments positions, other things remaining the same. The emphasis has been on the change in countries’ competitive positions in the goods market that would be needed to eliminate the change in their external positions that is attributable to higher oil prices.

For the simulations that are based on the increase in real oil prices that occurred from 1972 to 1980, it was found that among the major industrial countries the net energy exporters—namely, the United Kingdom and, to a lesser extent, Canada—would need relatively large real effective appreciations, 23 percent and 12 percent, respectively. Among the net energy importers, Japan would require the largest real effective depreciation, on the order of 28 percent. The European countries would require depreciations ranging from 3 percent to 7 percent and the United States, a 4 percent appreciation.

These results indicate that the real exchange rate adjustments required to offset the effects of a change in the relative price of a major traded good, such as oil, could be quite large, depending on countries’ natural endowments and trading relationships. For oil, the relative price increases were large, amounting to about 400 percent from 1972 to 1980. Further, the net effects of higher oil prices on countries’ external positions varied significantly across countries. If the results shown in Table 12 are normalized on the basis of the size of export flows, the estimates imply that a shock to the balance of payments equivalent to 10 percent of exports could be offset by a real exchange rate change of about 7 percent for Canada, France, and Italy, 8 percent for the Federal Republic of Germany, 9 percent for the United States, 11 percent for the United Kingdom, and 14 percent for Japan.

The preceding results reflect, to a large extent, the composition and price responsiveness of traded goods for each country. For example, the relatively large real exchange rate change required by Japan to offset an external shock can be explained by the low aggregate import price elasticity of Japan, compared with the other countries. In 1980, about 80 percent of Japan’s imports consisted of food, raw materials, and fuels—all of which have relatively low price elasiticities. By contrast, 50–60 percent of the imports of the other major industrial countries consisted of manufactured goods, which have relatively high price elasticities. Given the structure of trade, a deterioration in Japan’s external position would have to be offset mainly by an increase in exports because of the low price responsiveness of imports. Another example is the United Kingdom, where the larger than average real exchange rate change that would be required to offset an external disturbance is explained by the relatively low price responsiveness of exports.

Since 1980, the real price of oil has declined by about 5–6 percent. If the nominal price of oil remains constant through the end of 1984 and thereafter increases in line with industrial country export prices, the real price of oil will have declined on the order of 10 percent by 1985, compared with its level in 1980. Estimates derived from the MERM indicate that a decline of 10 percent in the real price of oil would result in a depreciation for the United Kingdom and an appreciation for Japan of about 3 percent in real effective terms, the United States and Canada would experience a depreciation of about 1 percent, and the European countries would appreciate by less than ½ of 1 percent. The negative effect on the effective exchange rate of the United States arises because a decline in oil prices would tend to reduce domestic energy production. The projected increase in energy demand would then have to be satisfied by a proportionately larger increase in oil imports than that projected for the other oil importing countries.

APPENDICES

I. Regressions Explaining Real Energy Demand1

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Real energy demand is measured as the demand for total primary energy in real terms. The form of the estimated equation is

In (real energy demand) =  a+b⋅In (real GDP) + Σi=0n⁢ci⋅In (real energy price)t−i

The lag distribution of the real price of energy was estimated using an unconstrained Almon polynomial lag of degree 3 except for the United Kingdom, for which a simple lag was used. Figures in parentheses are t-statistics.

II. Overview of the MERM

The systems of equations that make up the MERM are illustrated in matrix notation with variables expressed in percentage change. For a detailed description of the specification of the MERM, see Artus and McGuirk (1981).

Notation

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System of Demand Equations

I. demand equations for goods
[D*1...D*n]Dik*=[a11⋅⋅⋅a1⁢nan⁢1⋅⋅⋅an⁢n]ai⁢nk⁢  [Q*1...Q*n]Qnk*+[b1⋅⋅0⋅⋅b2⋅⋅0b˙n]  bik⁢[[ε1εn]εik⁢Ck*+[η1/1⋅⋅⋅η1/nηn/1⋅⋅⋅ηn/n]η¯i/nk⁢  [P*1...P*n]Pnk*]+[c1...cn]cik⁢Gk*+[d1...dn]dik⁢I*(1)
II. demand equations for products
[D*1, 1...D*i, 20]Di⁢jk*=Dik*+[η¯i, 1/i,  1⋅⋅⋅ηi, 1/i, 20η¯i, 20/i, 1⋅⋅⋅ηi, 20/i, 20]η¯i⁢j/i⁢lk⁢[P*1, 1...P*i, 20]Pi⁢jk*(2)

System of Supply Equations

I. supply equations for goods
[Q*1⁢j...Q*n⁢j]Q*i⁢j=[α1/1⋅⋅⋅α1/nαn/1⋅⋅⋅αn/n]αi/nk⁢  ⁢[P*⁢L1⁢j−S*i⁢jP*⁢Ln⁢j−S*n⁢j]P*⁢Li⁢j−S*i⁢j+T*j(3)
II. cost indicators
[S*1,j...S*n,j]S*i⁢j=[S⁢P11⁢j⋅⋅⋅S⁢Pn1⁢jS⁢P1n⁢j⋅⋅⋅S⁢Pnn⁢j]S⁢Pni⁢j⁢  [P*⁢L1j...P*⁢Lnj]P*⁢Lnj+[S⁢Pw1⁢j...S⁢Pwn⁢j]S⁢Pwi⁢j⁢ W*j+[S⁢PR1⁢j...S⁢PRn⁢j]S⁢PRi⁢j⁢ ⁢R*j+[S⁢PT⁢X1⁢j...S⁢PT⁢Xn⁢j]S⁢PT⁢Xi⁢j⁢ ⁢T*⁢Xj(4)

Market Equilibrium

D⁢Ni⁢j=Q⁢Ni⁢j=demand for good i⁢ produced by country  jis equal to supply of good  i⁢  produced bycountry j(5)

Feedback Effects

C⁢O*⁢Lj=Σn⁢s⁢cnj⁢(P*⁢Lnj)=percentage change in consumption deflator incountry j(6)
D⁢D*⁢DJ=Σn⁢s⁢gnj⁢(P*⁢Lnj)=percentage change in domestic demand de-flator in countryj(7)
D⁢I*⁢N⁢Vj=Σn⁢s⁢inj⁢(P*⁢Lnj)=percentage change in investment deflator incountryj(8)
W*j=wj⋅C⁢O*⁢Lj=percentage change in wages in country j(9)
R*j=rj⋅D⁢I*⁢N⁢Vj=percentage change in return to capital incountry j(10)
T*⁢Xj=tj⋅D⁢D*⁢Dj=percentage change in indirect taxes incountry j(11)

Output Constraint

Q¯*j=Σi⁢s⁢hi⁢j⁢(Q*i⁢j)=constant percentage change in aggregate realoutput of country j(12)

REFERENCES

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SUMMARIES

The Portfolio-Balance Model of Exchange Rates and Some Structural Estimates of the Risk Premium—michael p. dooley and peter isard (pages 683–702)

This paper focuses on the portfolio-balance model as a framework for addressing several unresolved issues about the behavior of exchange rates. A major objective is to contribute to an understanding of the relative importance of the different channels through which current account imbalances may influence exchange rates. A second objective is to provide structural estimates of the risk premium on a currency—defined as the difference between the expected rate of appreciation and the forward premium for that currency.

The risk premium is shown to depend on budget deficits, current account imbalances, and official foreign exchange intervention. Observed forward premiums have been small relative to the changes in exchange rates that have occurred since March 1973. By itself, that fact does not necessarily imply that exchange rate changes have been predominantly unexpected, since risk premiums may be large. However, the interpretation presented here of the empirical evidence, using the portfolio-balance model, suggests that the risk premiums can explain only a small proportion of the discrepancies between forward premiums and observed changes in exchange rates. The conclusions that are suggested, therefore, are that risk premiums have not played a prominent role in exchange rate determination and that exchange rate changes have been largely unexpected by market participants.

Agricultural Responses to Prices in Sub-Saharan African Countries—marian e. bond (pages 703–26)

In the 1970s many sub-Saharan countries experienced a decline from the already slow rate of growth of agricultural production of the 1960s. Because the agricultural sector in these countries is by far the largest, its well-being remains crucial to their economies, especially in the face of the difficult task of adjusting to the oil price increases of the 1970s. Stagnating agricultural output has greatly hampered this adjustment process in sub-Saharan Africa. Many economists maintain that inadequate market prices have been a principal reason for the poor performance of African agriculture in the 1970s; against this, others argue that while a positive output response to producer prices is considered normal in the agricultural sectors of more developed countries, such a response may not occur in African countries.

This paper both reviews quantitative evidence on supply responses to producer prices from individual crop studies and provides its own evidence as to how aggregate agricultural production responds to changes in the aggregate producer price index for a number of African countries. Supply responses are found to be positive for both individual and overall crop production. The evidence from individual crop studies suggests that long-run price elasticities tend to be larger than those for the short run, and that these elasticities are fairly sizable. For some crop studies, the evidence also suggests that an increase in production can take place without an equivalent fall in the production of a substitute crop, and that the target income hypothesis is not supported by the data. For aggregate crops, the evidence suggests that farmers do respond to changes in the aggregate producer price index.

To achieve a sound agricultural base in order to provide the necessary conditions for takeoff into economic growth, governments need to consider a comprehensive package of policies, of which producer pricing policy is only one element. Such a package would need to include pricing policies that would allow consumer goods and inputs to the agricultural sector to be fairly priced and that would shift some of the burden of government financing from the taxation of farmers to other sources. (The taxation of farmers arises from the difference between world market prices and the producer prices set by the government for export crops.) Improvements in extension services, infrastructure, input and consumer good availability, and credit services would also need to become part of the package. A farmer may respond quite differently to a change in the producer price when it is combined with available consumer goods and improved infrastructure than to the price change alone.

Choice of Intermediate Money Target in a Deregulated and an Integrated Economy with Flexible Exchange Rates—victor argy (pages 727–54)

This paper looks at the theoretical issues that underlie the choice of an intermediate target in a particular type of economy. The particular type of economy assumed in the analysis is one that is market oriented in three fundamental ways. First, the economy in question is highly integrated with the rest of the world. Second, exchange rates are fully determined by market forces. Third, the banking system is assumed to be deregulated.

The paper uses Poole’s well-known methodological framework for selecting a money aggregate. According to this framework, the optimal money aggregate is the one that minimizes the deviations from a target growth of gross national product in the face of unanticipated disturbances. Using a model of an open economy and applying the preceding criterion, the paper compares the performance of four money aggregates: base money (H), narrow money (M1), a broader money aggregate that includes interest-bearing deposits (M3), and a still broader money aggregate that now also includes holdings of foreign currency by residents (M3a).

It recognizes several unanticipated disturbances: in asset markets and in expenditures.

Allowance is made for six asset market disturbances—four originate within the domestic economy and two represent shifts across international frontiers. Domestic disturbances include a shift out of currency into demand deposits, an increase in the demand for free reserves on the part of the banking system, a shift out of demand deposits into time deposits, and a shift out of time deposits into domestic bonds. International disturbances include a shift out of demand deposits denominated in the domestic currency into demand deposits denominated in a foreign currency (the currency substitution case) and a change in the foreign interest rate.

The principal conclusion of the analysis is that, in general, M1 appears to be a good performer. The principal reason is that M1 is predominantly income determined. If the objective is to stabilize income, M1 will rise and fall as income rises and falls. By targeting M1 and correcting for these fluctuations in M1, the authorities will help to stabilize income.

The paper also looks at the implications of targeting for exchange rate and interest rate volatility.

Currency Substitution, Flexible Exchange Rates, and the Case for International Monetary Cooperation: Discussion of a Recent Proposal—franco spinelli (pages 755–83)

Over the past few years it has been suggested repeatedly that, because of asymmetric nonsterilized intervention, currency substitution translates into swings in the world money stock. A number of proposals have been made to reduce such destabilizing effects. One of these would amount to the establishment of a target for world money growth to assure that currency substitution affects only the composition of the world money stock and not its level. Under the proposed scheme, individual central banks would not pursue a fixed rate of monetary growth individually; rather, they would stand ready to accommodate any swing in the demand for domestic money by nonsterilized intervention designed to protect fixed exchange rates.

The purpose of the paper is to evaluate the analysis as well as the empirical evidence from which the preceding proposal follows; the focus is on the work of Ronald McKinnon. First, the main conclusion of the empirical literature on currency substitution is recalled, and it is shown that the hypothesis that the demand for individual currencies is quite unstable because of currency substitution receives little support in past research. However, the case for international monetary cooperation does not rest solely on the hypothesis of currency substitution. Indeed, the paper demonstrates that complete monetary independence with flexible exchange rates occurs only under a restrictive set of assumptions. Whenever monetary dependence results on account of currency substitution or other factors, both domestic and world money turn out to enter as determinants of domestic output and prices. The implication of these theoretical deductions and of the empirical evidence presented in Section IV is that central banks should not subordinate the control of domestic money to the control of a world monetary aggregate, although external effects generally arise from the policies pursued by each country. Specifically, it is stressed that the world demand for M1 does not appear to be stable enough to justify the move toward world monetary targets. There are alternative ways of achieving greater stability, even for countries that experience instability in the demand for their currency under fixed exchange rates.

Determining the Appropriate Levels of Exchange Rates for Developing Economies: Some Methods and Issues—ahsan h. mansur (pages 784–818)

The paper reviews a number of approaches that are available for determining an appropriate exchange rate that yields a sustainable balance on the external current account for a developing economy, given appropriate monetary, fiscal, and income policies. The study focuses on two aspects of the exchange rate issue—assessing the appropriateness of the prevailing exchange rate, and, if the exchange rate is found to be inappropriate, choosing an appropriate one. In view of theoretical as well as data-requirement problems that are associated with any ideal approach that integrates the real production economy with financial transactions in an intertemporal, multisectoral, general-equilibrium framework to produce an optimal path for the exchange rate, a multidirectional partial-equilibrium solution to the problem is chosen in the paper.

Any meaningful analysis of the appropriate exchange rate should contain both backward-looking and forward-looking elements. Backward-looking approaches measure recent movements in various indicators with possible implications for the appropriateness of the exchange regime and the exchange rate; however, any conclusion regarding the sustainability of an exchange rate would be premature without a forward-looking analysis. In this paper, a number of alternative backward-looking investigations with price competitiveness, the economic viability of production, and its past trends, parallel market activities, and the discretionary nature of the prevailing exchange regime are examined. In the forward-looking approach, the paper considers the sustainability of the prevailing exchange rate and the specifications of the underlying adjustment mechanisms that follow a hypothetical exchange rate action; the effects on the balance of payments and the government budget are examined in the context of different specifications of the wage/price transmission mechanism, an analysis of the supply response including the underlying reallocation of resources, and terms of trade effects. These are addressed sequentially; by repeating the sequence a few more times, a significant proportion of the feedback effects can be captured to provide the background information needed to determine the three types of change (i.e., valuation effects, recording effects, and real effects) in the balance of payments and budget analysis.

The approaches reviewed in this paper will not lead to a specific unambiguous conclusion regarding the “right” exchange rate, but they can enable one to establish whether an exchange rate should be changed to a new level within a certain range to attain specified economic objectives.

Determinants of Current Account Balances of Non-Oil Developing Countries in the 1970s: An Empirical Analysis—mohsin s. khan and malcolm d. knight (pages 819–42)

Given the widespread interest in the balance of payments problems of non-oil developing countries during the 1970s, the lack of systematic empirical work on the reasons for these problems is somewhat surprising. This paper pursues this issue through an examination of the quantitative relationship between the current account positions of non-oil developing countries and five of the principal determinants: (1) the terms of trade, (2) the growth rates of the industrial countries, (3) the real interest rate on external debt, (4) the government’s fiscal position, and (5) the real effective exchange rate. Following a brief description of how these factors evolved during the 1970s, a reduced form equation relating the current account balance to these five factors is estimated on a pooled sample of the 32 non-oil developing countries for which published data are available during the period 1973–81. The overall results and country-by-country tests suggest that, despite its simplicity, the model fits the data quite well. The estimates support the view that both external factors (the decline in the terms of trade, the stagnation of economic activity in industrial countries, and the sharp rise in real foreign interest rates) and domestic factors (approximated by the increase in fiscal deficits and the appreciation in real exchange rates) contributed significantly to the deteriorating current account positions of non-oil developing countries during the 1970s.

As to policy implications, the results provide rough estimates of the size of the real exchange rate changes that would have been needed, on average, to offset the impact of the worsened international environment on an individual country’s current account position. Some non-oil developing countries did manage to pursue appropriate policies to achieve the necessary change, but a large number of others were either unable or unwilling to do so. The 1980s found the latter group experiencing increased current account difficulties resulting both from adverse international developments and the overvaluation of their currencies that occurred during the previous decade.

Oil Price Changes and Real Exchange Rate Movements Among Industrial Countries—anne k. mcguirk (pages 843–84)

The purpose of this paper is to analyze quantitatively, in a multicountry framework, the longer-run effects of the oil price increases of the 1970s on the external positions and real exchange rates of the seven major industrial countries. More specifically, the analysis focuses on the changes in countries’ competitive positions in the goods market that would be required to eliminate the deterioration or improvement in the balance of payments that are attributable to changes in oil prices. For this purpose, a multicountry model is used that incorporates the bilateral and third-market trading relationships among the industrial countries, the oil exporting countries, and all other countries as a group. The analysis of the effects of oil price increases on real exchange rates is equally applicable to a decline in oil prices and to the general question of how a sustained change in the relative price of a major commodity affects real exchange rates.

It is argued that the major effects of a change in oil prices on a country’s balance of payments position in the longer run depend on the change in the country’s trade balance in energy products and the increase in the country’s exports to the oil exporting countries. In turn, the change in a country’s real exchange rate that is needed to offset the effects of oil price changes on its external position depends on the size and direction of the change in its balance of payments relative to those of other countries and the responsiveness of its imports and exports to relative price changes.

As expected, the empirical estimates indicate that, under the usual ceteris paribus condition, the realignment of the real exchange rates among the major industrial countries that would have been needed to offset the longer-run effects of the oil price increases of the 1970s on countries’ balance of payments positions was large. Measured in relation to the U.S. dollar, the pound sterling would have had to appreciate in real terms by 17 percent and the Canadian dollar by 10 percent. The currencies of the net energy importers would have had to depreciate relative to the U.S. dollar: the Japanese yen on the order of 27 percent; the deutsche mark and the French franc by 10 percent; and the Italian lira by 15 percent. In real effective terms, the realignment of real exchange rates that would have been needed corresponded to relatively small depreciations for the three European currencies, ranging from 3 percent to 7 percent; to a depreciation of the Japanese yen by 28 percent; and to appreciations of the U.S. dollar by 4 percent, the pound sterling by 23 percent, and the Canadian dollar by 12 percent.

RESUMES

Modèle d’équilibre de portefeuilles appliqué aux taux de change et certaines estimations (structurelles) de la prime de risque — michael p. dooley et peter isard (pages 683–702)

Le présent document porte essentiellement sur le modèle d’équilibre de portefeuille en tant que cadre d’analyse de plusieurs questions suggéré par le comportement des taux de change. Il a pour principal objectif de contribuer à une meilleure compréhension de l’importance relative des différentes voies par lesquelles les déséquilibres du compte des opérations courantes peuvent influer sur les taux de change. Il a également pour objectif de fournir des estimations de la prime de risque d’une monnaie — définie comme la différence entre le taux d’appréciation prévu et le report donné pour cette monnaie à terme.

Il apparaît que la prime de risque est fonction des déficits budgétaires, des déséquilibres des opérations courantes et des interventions officielles en devises. Les reports à terme observés ont été faibles par rapport aux variations de taux de change postérieures à mars 1973. Ce fait en soi ne suppose pas nécessairement que les variations de taux de change ont été pour l’essentiel imprévues, puisque les primes de risque peuvent être élevées. Cependant, selon l’interprétation des faits qui est donnée dans le présent document sur la base du modèle d’équilibre de portefeuille, les primes de risque ne peuvent expliquer qu’une faible partie des écarts entre les reports à terme et les variations de taux de change observées. En conséquence, les conclusions proposées sont les suivantes : les primes de risque n’ont pas joué un rôle prédominant dans la détermination du taux de change et, dans une large mesure, les variations des taux de change n’ont pas été prévues par ceux qui opèrent sur les marchés.

Réactions du secteur agricole aux prix en Afrique au sud du Sahara — marian e. bond (pages 703–26)

Dans les années 70, de nombreux pays situés au sud du Sahara ont enregistré, par rapport aux années 60, une baisse du taux de croissance, pourtant déjà faible, de leur production agricole. Etant donné que, dans ces pays, le secteur agricole prédomine très fortement, sa prospérité demeure vitale pour leur économie, en particulier du fait du difficile ajustement aux hausses de prix du pétrole des années 70. La stagnation de la production agricole a grandement entravé ce processus d’ajustement dans les pays d’Afrique situés au sud du Sahara. Pour nombre d’économistes, le niveau inadéquat des prix du marché a été l’une des principales raisons des résultats peu satisfaisants enregistrés par l’agriculture africaine au cours des années 70; d’autres objectent que, si une réaction positive de la production aux prix au producteur est considérée comme normale dans les secteurs agricoles des pays plus développés, il peut ne pas en être ainsi dans les pays d’Afrique.

Dans le présent document, l’auteur examine les observations quantitatives concernant les réactions de l’offre aux prix au producteur dans le cas de cultures particulières et expose ses propres observations en ce qui concerne la façon dont la production agricole globale réagit aux variations de l’indice global des prix au producteur dans un certain nombre de pays d’Afrique. Il apparaît que les réactions de l’offre sont positives, tant pour les productions particulières que pour la production globale. Les résultats obtenus à partir d’études consacrées à des cultures particulières indiquent que les élasticités-prix à long terme sont généralement supérieures à celles à court terme et qu’elles sont assez fortes. Dans le cas de certaines cultures, les résultats montrent aussi qu’une augmentation de la production peut se produire sans une diminution équivalente de la production d’une culture de substitution, et que l’hypothèse de revenu fixé comme objectif n’est pas corroborée par les données. En ce qui concerne l’ensemble des productions agricoles, les observations donnent à penser que les agriculteurs réagissent effectivement aux variations de l’indice global des prix au producteur.

Pour assurer la base agricole solide qui permettrait de créer les conditions nécessaires au décollage économique, les autorités doivent envisager d’adopter un ensemble de mesures détaillées, dont celles qui concernent les prix au producteur ne sont qu’un élément parmi d’autres. Cet ensemble de mesures devrait nécessairement comprendre des politiques permettant d’établir des prix équitables pour les biens de consommation et les produits intermédiaires du secteur agricole, et permettant de faire supporter par d’autres secteurs une partie du financement des dépenses publiques pesant sur les agriculteurs. (L’origine de l’imposition des agriculteurs est l’écart entre les cours mondiaux et les prix au producteur fixés par les autorités pour les cultures destinées à l’exportation.) Ce train de mesures devrait également comporter l’amélioration des services de vulgarisation, de l’infrastructure, de l’approvisionnement en produits intermédiaires et en biens de consommation ainsi que de la distribution des crédits. Il se peut qu’un agriculteur réagisse très différemment à une modification du prix versé au producteur selon que la modification s’accompagne ou non d’un approvisionnement en biens de consommation et d’une amélioration de l’infrastructure.

Choix d’un objectif monétaire intermédiaire dans une économie non réglementée et intégrée en régime de taux de change flexibles — victor argy (pages 727–54)

Dans le présent document, l’auteur examine les questions théoriques qui sous-tendent le choix d’un objectif monétaire intermédiaire dans un type particulier d’économie. Le type particulier d’économie supposé dans l’analyse est une économie de marché sous trois aspects fondamentaux. Premièrement, l’économie en question est hautement intégrée au reste du monde. Deuxièmement, les taux de change sont entièrement déterminés par les forces du marché. Troisièmement, on suppose que le système bancaire n’est pas réglementé.

Le présent document utilise le cadre méthodologique bien connu de Poole pour choisir un agrégat monétaire. Dans ce cadre, l’agrégat monétaire optimal est celui qui minimise les écarts par rapport à une croissance du produit national brut fixé comme objectif devant des perturbations imprévues. En utilisant un modèle d’une économie ouverte et en appliquant le critère susmentionné, l’auteur compare les résultats de quatre agrégats monétaires : la base monétaire (H), la monnaie au sens étroit (Mi), un agrégat monétaire plus large, qui comprend les dépôts rémunérés (M3), et un agrégat monétaire défini de façon encore plus large, qui comprend aussi les avoirs en devises des résidents (M3a).

Le présent document identifie plusieurs perturbations imprévues, d’une part, sur les marchés des capitaux et, d’autre part, du côté des dépenses.

Il tient compte de six perturbations sur les marchés des capitaux — quatre tirent leur origine de l’économie intérieure et deux représentent des mouvements internationaux. Les perturbations internes comprennent un recul des espèces au profit des dépôts à vue, une augmentation de la demande de réserves libres de la part du système bancaire, une diminution des dépôts à vue au profit des dépôts à terme et une diminution des dépôts à terme au profit d’obligations nationales. Les perturbations internationales comprennent un mouvement hors des dépôts libellés en monnaie nationale au profit des dépôts à vue libellés en devises (cas de substitution de monnaies) et une modification du taux d’intérêt à l’étranger.

La principale conclusion qui se dégage de l’analyse est qu’en général M1 semble donner des résultats satisfaisants, pour la raison principale que M1 est essentiellement déterminé par le revenu. Si l’objectif consiste à stabiliser le revenu, M1 augmentera et diminuera lorsque le revenu augmente ou diminue. En fixant un objectif pour M1, et en corrigeant les fluctuations de M1, les autorités contribueront à la stabilisation du revenu.

Dans le présent document, l’auteur examine aussi l’incidence de la fixation d’un objectif sur la variabilité du taux de change et du taux d’intérêt.

Substitution de monnaies, taux de change flexibles et arguments en faveur de la coopération monétaire internationale : examen d’une récente proposition — franco spinelli (pages 755–83)

Ces dernières années, d’aucuns ont indiqué à plusieurs reprises qu’en raison d’interventions asymétriques sans neutralisation des contreparties, la substitution de monnaies s’est traduite par des fluctuations de la masse monétaire mondiale. Un certain nombre de propositions visant à réduire ces effets perturbateurs ont été formulées. L’une d’elles consisterait à fixer un objectif en matière de croissance monétaire mondiale pour veiller à ce que la substitution de monnaies n’influe que sur la composition de la masse monétaire mondiale et non sur son volume. Dans le cadre du dispositif proposé, les banques centrales ne chercheraient pas, chacune pour sa part, à atteindre un taux de croissance monétaire préétabli, mais seraient disposées à accompagner toute fluctuation de la demande de monnaie nationale, en procédant à des interventions, sans neutralisation des contreparties, destinées à protéger les taux de change fixes.

Dans le présent document, l’auteur se propose d’évaluer la démarche théorique ainsi que les faits d’expérience dont découle la proposition susmentionnée, en s’appuyant sur les travaux de Ronald McKinnon. Premièrement, après un rappel de la principale conclusion qui se dégage des ouvrages empiriques consacrés à la substitution de monnaies, il est montré que les travaux antérieurs ne corroborent guère l’hypothèse selon laquelle la demande portant sur les différentes monnaies est très instable du fait de la substitution de monnaies. Toutefois, les arguments en faveur de la coopération monétaire internationale ne reposent pas uniquement sur l’hypothèse de la substitution de monnaies. De fait, le présent document prouve qu’en régimes de taux de change flexibles, l’indépendance monétaire n’est totale que dans le cas d’un ensemble d’hypothèses restrictives. Chaque fois que la dépendance monétaire résulte de la substitution de monnaies ou tient à d’autres facteurs, la masse monétaire nationale et la masse monétaire mondiale deviennent des déterminants de la production et des prix intérieurs. Ces déductions théoriques et les faits d’observation présentés dans la section IV amènent à conclure que les banques centrales ne devraient pas subordonner la régulation de la masse monétaire nationale à la régulation d’un agrégat monétaire mondial, bien que, généralement, la politique pratiquée par chaque pays exerce des effets externes. L’accent est particulièrement mis sur le fait que la demande mondiale de M1 ne semble pas être suffisamment stable pour justifier l’adoption d’objectifs monétaires mondiaux. Il existe d’autres moyens de parvenir à une plus grande stability, même dans les pays dont la monnaie fait l’objet d’une demande instable en régimes de taux de change fixes.

Comment déterminer le taux de change approprié pour un pays en développement : quelques méthodes et problèmes d’analyse — ahsan h mansur (pages 784–818)

L’auteur passe en revue un certain nombre de méthodes qu’on peut utiliser pour déterminer le taux de change qui permette à une économie en développement de maintenir en équilibre le solde des transactions courantes extérieures lorsque les politiques monétaire, budgétaire et du revenu sont adéquates. Son étude porte essentiellement sur deux aspects du problème des taux de change : chercher à déterminer si le taux en vigueur est adéquat et, dans la négative, choisir un taux satisfaisant. L’application d’une théorie qui intègre la production réelle et les transactions financières dans un cadre d’équilibre général faisant intervenir plusieurs périodes et plusieurs secteurs aux fins de tracer le sentier optimal du taux de change se heurte à des problèmes d’ordre théorique et à des difficultés liées à l’obtention des données requises; c’est pourquoi l’auteur a décidé d’apporter au problème une solution d’équilibre partiel multi-directionnel.

Toute analyse valable du niveau adéquat du taux de change doit inclure à la fois des éléments rétrospectifs et des éléments prospectifs. L’analyse rétrospective permet de mesurer l’évolution récente de divers indicateurs pouvant avoir des répercussions sur le caractère approprié du régime des changes et du taux de change; cependant, toute conclusion quant à la possibilité de maintenir un taux de change donné ne peut être que prématurée si elle ne s’appuie pas sur une analyse prospective. L’auteur examine un certain nombre d’analyses rétrospectives portant sur la compétitivité des prix, la viabilité économique de la production et son évolution passée, les activités du marché parallèle et la nature discrétionnaire du régime des changes en vigueur. Dans le cadre de l’analyse prospective, il considère la possibilité de maintenir le taux de change en vigueur et examine les spécifications des mécanismes d’ajustement fondamentaux que déclencherait une modification du taux de change; il en analyse les effets sur la balance des paiements et sur le budget de l’Etat en faisant intervenir diverses spécifications du mécanisme de transmission salaires/prix; il détermine ensuite la manière dont l’offre réagit, notamment en ce qui concerne la réallocation fondamentale des ressources, puis examine les répercussions au niveau des termes de l’échange. Ces effets sont étudiés successivement; en procédant à une telle analyse un certain nombre de fois, il est possible d’isoler une fraction significative des effets de rétroaction, ce qui permet d’obtenir les information jde base nécessaires pour déterminer les trois types de changements (c’est-à-dire les effets d’évaluation, les effets d’enregistrement et les effets réels) qui interviennent dans l’analyse de la balance des paiements et du budget.

Les méthodes examinées dans cette étude ne permettent pas d’aboutir à une conclusion bien définie quant au taux de change “correct” mais permettent de déterminer si un taux de change devrait être modifié et porté à un niveau se situant à l’intérieur d’une certaine marge pour qu’il soit possible d’atteindre des objectifs économiques déterminés.

Analyse empirique des facteurs déterminant le solde des transactions courantes des pays en développement non pétroliers dans les années 70 — mohsin s. khan et malcolm d. knight (pages 819–42)

Etant donné l’intérêt considérable porté dans les années 70 aux problèmes de balance des paiements des pays en développement non pétroliers, le fait que les causes de ces problèmes n’ont pas fait l’objet systématiquement de travaux empiriques est plutôt surprenant. Les auteurs traitent cette question en examinant la relation quantitative qui existe entre le solde des transactions courantes des pays en développement non pétroliers et cinq des principaux facteurs déterminants, à savoir : 1) les termes de l’échange, 2) les taux de croissance des pays industriels, 3) le taux d’intérêt réel de la dette extérieure, 4) la position budgétaire de l’Etat et 5) le taux de change effectif réel. Après avoir brièvement décrit la manière dont ces facteurs ont évolué au cours des années 70, les auteurs posent une équation sous forme réduite mettant en relation le solde des transactions courantes et ces cinq facteurs, équation qu’ils estiment à partir d’un échantillon regroupant les 32 pays en développement non pétroliers pour lesquels des données couvrant la période 1973–81 ont été publiées. Les résultats globaux et les tests relatifs à chaque pays montrent que, malgré sa simplicité, le modèle corrobore les données de manière vraiment satisfaisante. Les estimations confirment l’idée que les facteurs extérieurs (c’est-à-dire la baisse des termes de l’échange, la stagnation des activités économiques des pays industriels, la forte hausse des taux d’intérêt réels étrangers) comme les facteurs intérieurs (exprimés de manière approchée par l’augmentation des déficits budgétaires et la hausse des taux de change réels) ont contribué de manière significative à la détérioration au cours des années 70 du solde des transactions courantes des pays en développement non pétroliers.

Sur le plan de la politique économique, les résultats obtenus fournissent des estimations approximatives de l’ampleur des modifications qu’il aurait fallu apporter, en moyenne, au taux de change réel pour neutraliser l’impact de la détérioration de l’environnement international sur le solde des transactions courantes d’un pays donné. Si certains pays en développement non pétroliers ont réussi à pratiquer des politiques leur permettant de procéder aux modifications nécessaires, un grand nombre d’autres pays n’ont pu ou n’ont voulu agir de la sorte. Ces derniers ont éprouvé dans les années 80 des difficultés croissantes au niveau des transactions courantes, difficultés dues à la fois à l’évolution défavorable de la situation internationale et à la surévaluation de leur monnaie au cours de la décennie précédente.

Variations de prix du pétrole et mouvements du taux de change réel entre les pays industriels — anne k. mcguirk (pages 843–84)

L’objet du présent document est d’analyser quantitativement, dans un cadre multinational, les effets à long terme des hausses de prix du pétrole dans les années 70 sur la position extérieure et le taux de change réel des sept grands pays industriels. Plus spécifiquement, l’analyse porte sur l’ajustement de la position concurrentielle de ces pays sur les marchés des biens qui aurait été nécessaire pour éliminer la dégradation ou l’amélioration de la balance des paiements attribuable à l’évolution des prix du pétrole. Pour ce faire, l’auteur utilise un modèle multinational qui met en jeu les relations commerciales — bilatérales ou sur des marchés tiers — entre les pays industriels, les pays exportateurs de pétrole et tous les autres pays pris ensemble. L’analyse des effets des hausses de prix du pétrole sur les taux de change réels est également applicable dans le cas d’un recul de ces prix et, d’une façon générale, aux effets qu’une modification durable du prix relatif d’un grand produit de base exerce sur les taux de change réels.

L’auteur fait valoir que les principaux effets d’une variation de prix du pétrole sur la situation à long terme de la balance des paiements d’un pays dépendent, d’une part, des changements que subit le poste produits énergétiques et, d’autre part, de l’accroissement des exportations de ce pays à destination des pays exportateurs de pétrole. Par suite, l’adaptation du taux de change d’un pays nécessaire pour neutraliser l’impact des variations de prix du pétrole sur sa position extérieure dépend elle-même de l’ampleur et du sens de la variation de sa balance des paiements par rapport à celle d’autres pays, et de la réaction de ses importations et exportations à l’évolution relative des prix.

Comme prévu, des estimations obtenues à partir de données observées montrent que, toutes choses égales par ailleurs, il aurait fallu procéder à un profond réalignement des taux de change réels entre les grands pays industriels pour neutraliser les effets à long terme de la hausse des prix du pétrole des années 70 sur la situation de balance des paiements de ces pays. Par rapport au dollar E.U., la livre sterling et le dollar canadien auraient dû augmenter, en valeur réelle, de 17 et de 10 %, respectivement, et les unités monétaires des importateurs nets d’énergie baisser : le yen de l’ordre de 27 %, le deutsche mark et le franc français, de 10 %, et la lire italienne, de 15 %. En valeurs réelles effectives, ce réalignement correspond à une baisse assez faible (entre 3 et 7 %) dans le cas des trois unités monétaires européennes, mais de 28 % dans celui du yen japonais, et à une hausse du dollar E.U. de 4 %, de la livre sterling de 23 % et du dollar canadien de 12 %.

RESUMENES

El modelo de equilibrio de cartera para los tipos de cambio y algunas estimaciones estructurales de la prima de riesgo—michael p. dooley y peter isard (páginas 683–702)

Este artículo se centra en el modelo de equilibrio de cartera como marco conceptual para abordar varias cuestiones todavía no resueltas sobre el comportamiento de los tipos de cambio. Un objetivo importante es contribuir a una mejor comprensión de la importancia relativa de los diferentes cauces a través de los cuales los desequilibrios en cuenta corriente pueden influir en los tipos de cambio. Un segundo objetivo es el de facilitar estimaciones estructurales de la prima de riesgo en una determinada moneda, definida como la diferencia entre la tasa prevista de apreciación y la prima a término correspondiente a esa moneda.

Se demuestra que la prima de riesgo depende de los déficit presupuestarios, de los desequilibrios en cuenta corriente y de la intervención oficial en divisas. Las primas a término observadas han sido pequeñas en relación con las variaciones de los tipos de cambio registradas desde marzo de 1973. De por sí, esto no significa necesariamente que las variaciones cambiarías hayan sido predominantemente imprevistas, dado que las primas de riesgo pueden ser elevadas. Sin embargo, la interpretación que aquí se ofrece de los datos empíricos, utilizando el modelo de equilibrio de cartera, indica que las primas de riesgo pueden explicar solamente una proporción reducida de las discrepancias entre las primas a término y las variaciones observadas de los tipos de cambio. Se sugiere, pues, en conclusión, que las primas de riesgo no han desempeñado un papel prominente en la determinación de los tipos de cambio y que las variaciones cambiarías han sido en su mayor parte imprevistas por los participantes en el mercado.

Reacciones de la agricultura ante los precios en los países del Africa al sur del Sahara—marian e. bond (páginas 703–26)

En los años setenta muchos países al sur del Sahara experimentaron una disminución en la tasa de crecimiento de la producción agrícola, que ya había sido baja en el decenio anterior. Como el sector agrícola domina la economía de estos países, el progreso en dicho sector es esencial, especialmente en vista de la ardua tarea que para ellos representa el ajuste a las alzas de precios del petróleo ocurridas en los años setenta. El estancamiento de la producción agrícola ha dificultado considerablemente este proceso de ajuste en el Africa al sur del Sahara. Muchos economistas mantienen que los precios inadecuados del mercado han constituido la razón principal de los mediocres resultados obtenidos en la agricultura africana durante los años setenta; otros mantienen, por el contrario, que si bien en el sector agrícola de los países más desarrollados se considera normal una reacción positiva de la producción ante los precios al productor, puede que dicha reacción no tenga lugar en los países africanos.

En el presente estudio se examina la evidencia cuantitativa sobre las reacciones de la oferta ante los precios al productor, basándose en estudios sobre los distintos cultivos, y se presenta la evidencia propia en cuanto a la forma en que la producción agrícola agregada reacciona ante las variaciones del índice agregado de precios al productor en varios países africanos. Las reacciones de la oferta resultaron ser positivas tanto para la producción global como para la de los distintos cultivos. La evidencia obtenida en los estudios de los distintos cultivos indica que la elasticidad a largo plazo con respecto al precio tiende a ser mayor que la de corto plazo, y que dicha elasticidad es bastante grande. En algunos de los estudios sobre cultivos, la evidencia indica también que puede tener lugar un aumento de producción sin que disminuya de forma correspondiente la producción de un cultivo sustitutivo, y que los resultados no corroboran la hipótesis del ingreso meta. Por lo que se refiere a los cultivos agregados, la evidencia indica que los agricultores reaccionan ante las variaciones en el índice agregado de precios al productor.

Para lograr una base agrícola sólida con objeto de proporcionar las condiciones necesarias para el despegue inicial del crecimiento económico, los gobiernos tienen que considerar un conjunto completo de medidas de política, entre las cuales la política de precios al productor no es más que uno de los elementos. Dicho conjunto de medidas habrá de incluir una política de precios que permita un precio justo para los bienes de consumo y para los insumos del sector agrícola y que permita que una parte de la carga del financiamiento que recae en el Estado se desplace hacia otras fuentes a fin de aminorar la carga tributaria que pesa sobre los agricultores. (Dicha carga tributaria consiste en la diferencia entre los precios del mercado mundial y los precios al productor fijados por el gobierno para los cultivos de exportación.) También habrá que incluir mejoras en los servicios de extensión, infraestructura, disponibilidad de insumos y de bienes de consumo, y en facilidades de crédito, como parte del conjunto de medidas. La reacción de un agricultor ante una variación del precio al productor puede ser completamente distinta cuando aquélla va combinada con la disponibilidad de bienes de consumo y una mejor infraestructura, que cuando se trate de una variación del precio por sí sola.

Elección de un objetivo monetario intermedio en una economía desreglamentada y en una economía integrada con tipos de cambio flexibles—victor argy (páginas 727–54)

En este artículo se estudian las cuestiones teóricas en que se basa la elección de un objetivo intermedio en una clase determinada de economía. Para el presente análisis se utiliza una economía orientada al mercado en tres formas fundamentales. En primer lugar, la economía en cuestión tiene un alto nivel de integración con el resto del mundo. En segundo lugar, los tipos de cambio están plenamente determinados por las fuerzas del mercado. En tercer lugar, se trata de un sistema bancario desreglamentado.

Se adopta en este estudio el conocido marco metodológico de Poole para la selección de un agregado monetario. Según esta metodología, el agregado monetario óptimo es el que reduzca al mínimo las desviaciones respecto del objetivo de crecimiento del producto nacional bruto frente a perturbaciones no previstas. Utilizando un modelo de economía abierta y aplicando el criterio mencionado, se compara en este artículo el comportamiento de cuatro agregados monetarios: base monetaria (H), dinero en sentido estricto (M1), un agregado monetario más amplio que incluye los depósitos que devengan intereses (M3) y un agregado monetario aún más amplio que incluye también las tenencias en divisas de residentes (M3a).

Se reconocen diversas perturbaciones no previstas en los mercados de activos y en el gasto. Se tienen en cuenta seis perturbaciones del mercado de activos; cuatro de ellas tienen su origen dentro de la economía interna, y dos representan desplazamientos a través de las fronteras. Las perturbaciones internas incluyen una en que hay un abandono de moneda para pasar a depósitos a la vista, una en que aumenta la demanda de reservas libres por parte del sistema bancario, una en que se pasa de depósitos a la vista a depósitos a plazo y otra en que se pasa de depósitos a plazo a bonos internos. Las perturbaciones internacionales incluyen una en que se pasa de depósitos a la vista denominados en moneda nacional a depósitos a la vista denominados en divisas (el caso de sustitución de monedas) y otra en que varía el tipo de interés extranjero.

La conclusión principal del análisis es que, en general, el comportamiento de M1 parece ser satisfactorio. La razón principal es que M1 está primordialmente determinado por el ingreso. Si el objetivo consiste en estabilizar el ingreso, Mi subirá y bajará con los ascensos y descensos del ingreso. Fijando un objetivo para M1 y corrigiendo las fluctuaciones de este agregado, las autoridades contribuirán a estabilizar el ingreso.

También se examinan las consecuencias que la fijación de objetivos tiene para la inestabilidad de los tipos de cambio y de interés.

Sustitución de monedas, tipos de cambio flexibles y argumentos en favor de la cooperación monetaria internacional: Discusión de una propuesta reciente—franco spinelli (páginas 755–83)

En estos últimos años se ha sugerido repetidamente que, debido a la intervención asimétrica no esterilizada, la sustitución de monedas hace fluctuar mucho la masa monetaria mundial. Se han propuesto diversas soluciones para reducir esos efectos desestabilizadores. Una de ellas es la fijación de una meta de crecimiento monetario mundial que asegure que la sustitución de monedas sólo afecte a la composición de la masa monetaria mundial, pero no al nivel de la misma. Según esa solución, los distintos bancos centrales no se propondrían una tasa fija de crecimiento monetario individualmente, sino que acomodarían las fluctuaciones de la demanda de dinero nacional emprendiendo una intervención no esterilizada para proteger los tipos de cambio fijos.

El objeto del presente estudio es evaluar el análisis y los datos empíricos en que se basa la mencionada propuesta, centrándose en los trabajos de Ronald McKinnon. Primero se analiza la conclusión principal de la literatura empírica sobre sustitución de monedas, demostrándose que la hipótesis de que la demanda de distintas monedas es muy inestable debido a la sustitución de monedas no está respaldada por la investigación efectuada hasta ahora. Sin embargo, el argumento a favor de la cooperación monetaria internacional no constituye la única base para la hipótesis de la sustitución de monedas. De hecho, este estudio demuestra que, con tipos de cambio flexibles, la independencia monetaria completa sólo se da con un conjunto restrictivo de supuestos. Siempre que se produzca una dependencia monetaria como consecuencia de la sustitución de monedas, o de otros factores, tanto el dinero nacional como el mundial se convierten en factores determinantes del producto y los precios internos. La consecuencia de estas deducciones teóricas y de los datos empíricos presentados en la sección IV es que los bancos centrales no deben subordinar el control del dinero interno al control de un agregado monetario mundial, aunque las políticas que adopta cada país suelen causar efectos externos. Específicamente, se subraya que la demanda mundial de Mi no parece ser tan estable como para justificar la idea de fijar metas monetarias mundiales. Hay otras maneras de lograr una mayor estabilidad, incluso para los países que experimentan inestabilidad en la demanda de su moneda con tipos de cambios fijos.

Determinación del nivel apropiado para los tipos de cambio de las economías en desarrollo: Algunos métodos y problemas—ahsan h. mansur (páginas 784–818)

En este estudio se examinan varios métodos de determinación del tipo de cambio apropriado, o sea, el que con las debidas políticas fiscal, monetaria y de ingresos produce un equilibrio sostenible en la balanza en cuenta corriente de una economía en desarrollo. El estudio enfoca dos aspectos del problema de los tipos de cambio: la determinación de si el tipo de cambio vigente es adecuado y, en caso negativo, la selección del tipo apropiado. En vista de los problemas teóricos y de los datos que requiere todo modelo teórico que integre la economía de la producción real con las transacciones financieras en un marco de equilibrio general intertemporal multisectorial para producir una trayectoria óptima para el tipo de cambio, en el presente artículo se selecciona para el problema una solución del equilibrio parcial de múltiple orientación.

Todo análisis significativo del tipo de cambio apropiado debe contemplar tanto el pasado como el futuro. Los enfoques dirigidos hacia el pasado miden los movimientos recientes en varios indicadores que pueden influir en la adecuación del régimen cambiario y del tipo de cambio; sin embargo, sin un análisis que contemple el futuro, toda conclusión acerca de la estabilidad de un tipo de cambio sería prematura. En este estudio se examinan otras investigaciones orientadas hacia el pasado sobre la competitividad de precios, la viabilidad económica de la producción y sus tendencias anteriores, las actividades del mercado paralelo y el carácter discrecional del régimen cambiario vigente. En el enfoque orientado hacia el futuro se consideran las perspectivas de que el tipo de cambio vigente pueda mantenerse y las especificaciones de los mecanismos básicos de ajuste que entrarán a funcionar al adoptarse una medida hipotética de tipos de cambio; los efectos en la balanza de pagos y el presupuesto del Estado se examinan en el contexto de diferentes especificaciones del mecanismo de transmisión salarios/precios, un análisis de la reacción de la oferta, incluida la reasignación básica de recursos, y los efectos de relación de intercambio. El análisis se hace en secuencia; repitiendo la secuencia varias veces, puede captarse una parte importante de los efectos de retroacción para facilitar la información básica que se necesita para determinar las tres categorías de cambio (o sea, efectos de valuación, efectos de registro y efectos reales) en el análisis de la balanza de pagos y del presupuesto.

Los métodos examinados en este trabajo no llevarán a una conclusión específica inequívoca sobre el tipo de cambio “correcto” pero pueden servirnos para determinar si es necesario alterar el nivel de un tipo de cambio, dentro de una gama dada, para alcanzar objetivos económicos determinados.

Determinantes de las balanzas en cuenta corriente de los países en desarrollo no petroleros en los años setenta: Análisis empírico—mohsin s. khan y malcolm d. knight (páginas 819–42)

Sorprende un poco que a pesar del amplio interés que han despertado los problemas de balanza de pagos de los países en desarrollo no petroleros en los años setenta, no haya trabajos empíricos sistemáticos sobre los factores que los causaron. En el presente trabajo se estudia este tema examinando la relación cuantitativa entre la posición en cuenta corriente de los países en desarrollo no petroleros y cinco de los principales factores determinantes: 1) la relación de intercambio, 2) la tasa de crecimiento de los países industriales, 3) el tipo de interés real de la deuda externa, 4) la posición fiscal del gobierno y 5) el tipo de cambio efectivo real. Después de describir brevemente la evolución de estos factores en el período en cuestión, se estima una ecuación de forma reducida que relaciona la balanza en cuenta corriente con estos cinco factores, usando una muestra combinada de los 32 países en desarrollo no petroleros sobre los cuales hay datos publicados para el período 1973–81. Los resultados globales y las pruebas efectuadas país por país sugieren que, a pesar de su sencillez, el modelo se compagina bastante bien con los datos. Las estimaciones apoyan la opinión de que tanto los factores externos (el deterioro de la relación de intercambio, el estancamiento de la actividad económica en los países industriales y la fuerte elevación de los tipos de interés reales extranjeros) como los internos (representados por el aumento de los déficit fiscales y la apreciación de los tipos de cambio reales) contribuyeron en forma significativa al deterioro de la posición de la balanza en cuenta corriente de los países en desarrollo no petroleros en los años setenta.

Esto tiene ciertas consecuencias en cuanto a las medidas de política. Los resultados dan estimaciones muy generales sobre cuánto hubieran debido modificarse los tipos de cambio reales, en promedio, para neutralizar el impacto de la adversa situación internacional en la posición en cuenta corriente de cada país. Algunos países en desarrollo no petroleros consiguieron aplicar políticas apropriadas para lograr la modificación necesaria, pero muchos otros no pudieron o no estuvieron dispuestos a hacerlo. La balanza en cuenta corriente de este último grupo de países ha experimentado crecientes dificultades en lo que va de los años ochenta derivadas de la adversa evolución de la situación internacional y también de la sobrevaloración de su moneda ocurrida durante la década anterior.

Las variaciones del precio del petróleo y las del tipo de cambio real de los países industriales—anne k. mcguirk (páginas 843–84)

El objetivo de este artículo es analizar cuantitativamente, en un marco multinacional, los efectos a largo plazo que las alzas del precio del petróleo en los años setenta han tenido en la posición externa y el tipo de cambio real de los siete países industriales principales. Más concretamente, se investiga cuánto tendría que variar la posición competitiva de los países en el mercado de bienes para eliminar el deterioro o mejora de la balanza de pagos atribuible a las variaciones del precio del petróleo. Con este fin, se utiliza un modelo de varios países que incorpora las relaciones comerciales bilaterales y con terceros mercados entre los países industriales, los países exportadores de petróleo, y todos los demás países como grupo. El análisis de los efectos de las alzas del precio del petróleo en los tipos de cambio reales es aplicable igualmente a una baja del precio del petróleo y al tema general de cómo afecta al tipo de cambio real una variación sostenida del precio relativo de un producto importante.

Se sostiene que los principales efectos de una variación del precio del petróleo en la posición de la balanza de pagos de un país dependen a largo plazo de las variaciones de su balanza comercial en productos energéticos y del aumento de sus exportaciones a los países exportadores de petróleo. A su vez, la variación que tendrá que experimentar el tipo de cambio real del país para neutralizar los efectos de las variaciones del precio del petróleo sobre su posición externa dependerá de la magnitud y dirección en que haya variado su balanza de pagos en relación con la de los otros países y de la sensibilidad de su importación y exportación ante las variaciones de los precios relativos.

Como era de prever, las estimaciones empíricas indican que bajo la condición usual de ceteris paribus se habría necesitado una reordenación importante de los tipos de cambio reales de los principales países industriales para neutralizar los efectos a largo plazo que las alzas del precio del petróleo en los años setenta han ejercido en la posición de balanza de pagos de esos países. En relación con el dólar de EE.UU., la libra esterlina hubiera tenido que apreciarse en términos reales en 17 por ciento, y el dólar canadiense, en 10 por ciento. Las monedas de los países importadores netos de energía hubieran tenido que depreciarse en relación con el dólar de EE.UU. en la siguiente forma: el yen japonés, en 27 por ciento; el marco alemán y el franco francés en 10 por ciento, y la lira italiana en 15 por ciento. En términos efectivos reales, la reordenación de tipos de cambio reales que se hubiera necesitado implicaba una depreciación relativamente pequeña—de entre 3 y 7 por ciento—de las tres monedas europeas, una depreciación para el yen japonés de 28 por ciento, y apreciaciones del dólar de EE.UU., la libra esterlina y el dólar canadiense de 4 por ciento, 23 por ciento y 12 por ciento, respectivamente.

In statistical matter (except in the résumés and resúmenes) throughout this issue,

  • Dots (…) indicate that data are not available;

  • A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • A single dot (.) indicates decimals;

  • A comma (,) separates thousands and millions;

  • “Billion” means a thousand million;

  • A short dash (-) is used between years or months (e.g., 1977–79 or January–October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

  • A stroke (/) is used between years (e.g., 1978/79) to indicate a fiscal year or a crop year;

Components of tables may not add to totals shown because of rounding.

International Monetary Fund, Washington, D.C. 20431 U.S.A.

Telephone number: 202 473 7430

Cable address: Interfund

*

Ms. McGuirk, Senior Economist in the External Adjustment Division of the Research Department, holds degrees from Dunbarton College and George Washington University.

1

The average export price of a barrel of oil from the oil exporting countries increased from $2.29 in 1972 to $10.49 in 1974 and from $12.83 in 1978 to $30.91 in 1980. In relation to the average price of exports from industrial countries, the real price of oil increased by 406 percent from 1972 to 1980. Over the same period, total real prices for energy in the major industrial countries increased by varying amounts, ranging from 40 percent for Canada and the United Kingdom to 136 percent for the United States. In 1981, real prices of oil increased by 11 percent, but then declined by 0.8 percent in 1982. For 1983, the average price of oil from the oil exporting countries was about $28.00 a barrel; relative to the average export price of industrial countries, it was 5–6 percent lower in real terms than it was in 1980.

2

For an industrial country, complete adjustment of the structure of consumption and production to the large real oil price increases since 1972 may take as long as 20 years, considering the time required to redesign the capital stock to produce “energy efficient” durable goods. For example, Nordhaus (1980, p. 346) states that it will be 1990 before plant and equipment in the U.S. automobile industry can be completely retooled to make small cars.

3

The oil exporting countries are Algeria, Indonesia, the Islamic Republic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

4

For a discussion of these issues with reference to the United States, see Denison (1980), who supports the no-effect view, and Jorgenson (1980), who supports the opposing view.

5

Specifically, this is defined as the change in the balance on trade in fuels as defined in Section 3 of the Standard International Trade Classification, which includes trade in coal, petroleum and petroleum products, gas (natural and manufactured), and electric current. For the countries in the Organization for Economic Cooperation and Development (OECD), more than 90 percent of net energy imports consists of oil and oil products.

6

The homogeneous goods (or perfect-substitutes) model is based on the assumption that foreign and domestic goods are perfectly substitutable. See Goldstein and Khan (1982, p. 10) for a characterization of this model.

7

The shift toward oil consumption and away from other energy sources occurred much earlier in the United States, where domestic oil supplies were plentiful, than in Europe. By 1955, coal’s share in total energy consumption was about 30 percent, compared with 75 percent in 1915, and it declined to about 20 percent by 1973. See Dunkerley (1980), pp. 19–21.

8

Indices of the price of energy for each of the industrial countries were provided by the OECD. These indices are constructed using price data for individual fuels and moving weights supplied by the IEA. Real energy prices are calculated by dividing nominal energy price indices by indices of the GDP deflator. Because energy prices are included in the GDP deflators, the indices of real energy prices used herein may understate the change in real energy prices.

9

See Mittelstädt and Hall (1981) for a discussion of the empirical problems associated with estimating the price elasticity of energy demand and for a survey of recent estimates for industrial countries.

10

Prior to those increases, estimates of production from the North Slope of Alaska ranged from 1½ to 2 million barrels per day (mb/d). Production for the first quarter of 1982 was 1.7 mb/d. For the United Kingdom, oil production from the North Sea was estimated to be about 100 million tons a year. See, for example, OECD (1973, pp. 58–64) and Brodman and Hamilton (1979).

11

For Italy, which has few energy resources, domestic energy supply is assumed to be the same for both the 1978 and the 1980 real oil price projections.

12

About one third of the imports of oil exporting countries consists of services. The data on bilateral service flows between the industrial countries and the oil exporting countries are insufficient to construct the weights necessary to allocate service flows; therefore, trade weights are used to distribute exports of goods and services to the oil exporting countries. The results are affected to the extent that the distribution of service flows differs significantly from that of trade flows.

13

The countries and groups of countries in the MERM are Australia, Austria, Belgium-Luxembourg, Canada, Denmark, Finland, France, the Federal Republic of Germany, Ireland, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, the United States, the oil exporting countries, and the rest of the world.

14

See Goldstein and Khan (1982) for a recent survey of income and price elasticities in foreign trade. Only one study cited therein reported price elasticities significantly higher than those used here.

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