© 2007 Thomson South-Western. Open-Economy Macroeconomics: Basic Concepts Open and Closed Economies –A closed economy ( 封閉經濟 )is one that does not interact

© 2007 Thomson South-Western© 2007 Thomson South-Western

© 2007 Thomson South-Western

Open-Economy Macroeconomics: Open-Economy Macroeconomics: Basic Concepts Basic Concepts • Open and Closed Economies

– A closed economy ( 封閉經濟 )is one that does not interact with other economies in the world.

• There are no exports, no imports, and no capital flows.

– An open economy( 開放經濟 ) is one that interacts freely with other economies around the world.


Open-Economy Macroeconomics: Basic Open-Economy Macroeconomics: Basic ConceptsConcepts• An open economy interacts with other

countries in two ways.– It buys and sells goods and services in world

product markets.– It buys and sells capital assets in world financial

markets.


THE INTERNATIONAL FLOW OF THE INTERNATIONAL FLOW OF GOODS AND CAPITALGOODS AND CAPITAL• The Flow of Goods: Exports, Imports, and Net

Exports– The United States is a very large and open

economy—it imports and exports huge quantities of goods and services.

– Taiwan is a small and very open economy-it exports and imports large quantities of goods and services.

– Over the past four decades, international trade and finance have become increasingly important.


The Flow of Goods: Exports, The Flow of Goods: Exports, Imports, Net ExportsImports, Net Exports• Exports are goods and services that are

produced domestically and sold abroad.

• Imports are goods and services that are produced abroad and sold domestically.

• Net exports (NX) are the value of a nation’s exports minus the value of its imports.

• Net exports are also called the trade balance( 貿易餘額 ).


The Flow of Goods: Exports, The Flow of Goods: Exports, Imports, Net ExportsImports, Net Exports• A trade deficit( 貿易赤字 ) is a situation in

which net exports (NX) are negative. – Imports > Exports

• A trade surplus ( 貿易盈餘 )is a situation in which net exports (NX) are positive. – Exports > Imports

• Balanced trade refers to when net exports are zero—exports and imports are exactly equal.


The Flow of Goods: Exports, The Flow of Goods: Exports, Imports, Net ExportsImports, Net Exports• Factors That Affect Net Exports

– 偏好： The tastes of consumers for domestic and foreign goods and services.

– 國內外商品價格： The prices of goods at home and abroad.

– 匯率： The exchange rates at which people can use domestic currency to buy foreign currencies.


The Flow of Goods: Exports, The Flow of Goods: Exports, Imports, Net ExportsImports, Net Exports• Factors That Affect Net Exports (continued)

– 所得購買力： The incomes of consumers at home and abroad.

– 運輸成本： The costs of transporting goods across border.

– 貿易政策： The policies of the government toward international trade.


The Internationalization of the U.S. EconomyThe Internationalization of the U.S. EconomyPercentof GDP

0

5

10

15

1950 1955 1960 1965 1970 1975 1980 19901985 2000 20051995

Imports

Exports


1960~2008 年台灣經濟國際化程度

10. 00%

20. 00%

30. 00%

40. 00%

50. 00%

60. 00%

70. 00%

80. 00%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 年

GDP%佔

出口

進口


The Flow of Financial Resources: The Flow of Financial Resources: Net Capital OutflowNet Capital Outflow• Net capital outflow ( 淨資本流出， NCO)

refers to the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.

• When a Taiwan resident buys stock in Intel, the purchase raises Taiwan net capital outflow.

• When a Japanese residents buys a bond issued by the Taiwan’s government, the purchase reduces the Taiwan’s net capital outflow.


The Flow of Financial Resources: The Flow of Financial Resources: Net Capital Outflow Net Capital Outflow • Variables that Influence Net Capital Outflow

– 國內實質利率：國內實質利率： The real interest rates being paid on foreign assets.

– 國外實質利率：國外實質利率： The real interest rates being paid on domestic assets.

– 國外政經風險：國外政經風險： The perceived economic and political risks of holding assets abroad.

– 政府政策：政府政策： The government policies that affect foreign ownership of domestic assets.


Saving, Investment, and Their Relationship to Saving, Investment, and Their Relationship to the International Flowsthe International Flows• Net exports is a component of GDP:

Y = C + I + G + NX

• National saving is the income of the nation that is left after paying for current consumption and government purchases:

Y – C – G = I + NX

• National saving (S) equals Y – C – G, so:

S = I + NX

• In a closed economy, NX=0 and hence:

S = I


The Equality of Net Exports and Net The Equality of Net Exports and Net Capital OutflowCapital Outflow

• For an economy as a whole, NX and NCO must balance each other so that:

NCO = NX• This holds true because every transaction that

affects one side of this equation also affects the other side by exactly the same amount.


The Equality of Net Exports and Net The Equality of Net Exports and Net Capital outflowCapital outflow• Imagine that you are a sales person residing in

Taiwan. One day, you sell ten bikes to a U.S. customer for 10,000 U.S. dollars.

• This sale is an export of Taiwan, so it increases Taiwan net exports by 10,000 U.S. dollars.

• If you decide to use the proceeds to purchase the INTEL stock. Then you, as a domestic resident, purchase and own foreign assets.


The Equality of Net Exports and Net The Equality of Net Exports and Net Capital outflowCapital outflow• The purchase of INTEL stock increases Taiwan net

capital outflow by 10,000 U.S. dollars.• If you use 10,000 U.S. dollars to a good made in

U.S., then Taiwan imports will increase by 10,000 U.S. dollars. And the net capital flow does not change.

• If you go to a local bank to exchange 10,000 U.S. dollars for N.T. dollars. But this does not change the situation because the bank has to do something with the 10,000 U.S. dollars.


International Flows of Goods and Capital: International Flows of Goods and Capital: SummarySummary


National Saving, Domestic Investment, and Net National Saving, Domestic Investment, and Net Foreign InvestmentForeign Investment

(a) National Saving and Domestic Investment (as a percentage of GDP)

Percentof GDP

20

18

16

14

12

101960 1965 199519901985198019751970 2000 2005

National saving

Domestic investment


National Saving, Domestic Investment, and Net National Saving, Domestic Investment, and Net Foreign InvestmentForeign Investment

(b) Net Capital Outflow (as a percentage of GDP)

Percentof GDP

2

6

5

4

3

2

1

0

1

1960 1965 199519901985198019751970 2000 2005

Net capitaloutflow


1960~2008 GDP年台灣國民儲蓄及國內投資佔比率

10. 00%

20. 00%

30. 00%

40. 00%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 年

GDP%佔

國民儲蓄

國內投資


1960~2008 GDP年台灣淨出口佔比率

-10. 00%

-5. 00%

0. 00%

5. 00%

10. 00%

15. 00%

20. 00%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005年

GDP%佔

淨出口


THE PRICES FOR INTERNATIONAL TRANSACTIONS: THE PRICES FOR INTERNATIONAL TRANSACTIONS: REAL AND NOMINAL EXCHANGE RATESREAL AND NOMINAL EXCHANGE RATES

• International transactions are influenced by international prices.

• The two most important international prices are the nominal exchange rate( 各目匯率 ) and the real exchange rate( 實質匯率 ).


• The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another.

Nominal Exchange RatesNominal Exchange Rates



• The nominal exchange rate is expressed in two ways:– In units of foreign currency per one N.T. dollar.– In units of N.T. dollars per one unit of the foreign

currency.• Assume the exchange rate between the N.T. dollar

and U.S. dollar is 33 N.T. dollars to one U.S. dollar.– One U.S. dollar trades for 33 N.T. dollars.– One N.T. dollar trades for 1/33 (= 0.0303) of a U.S.

dollar.



• Appreciation ( 貨幣升值 ) refers to an increase in the value of a currency as measured by the amount of foreign currency it can buy.

• Depreciation ( 貨幣貶值 ) refers to a decrease in the value of a currency as measured by the amount of foreign currency it can buy.

• If one N.T. dollar buys more foreign currency, there is an appreciation of the N.T. dollar.

• If it buys less there is a depreciation of the N.T. dollar.


Real Exchange RatesReal Exchange Rates

• The real exchange rate is the rate at which a person can trade one basket of the goods and services of one country for units of the same basket of the goods and services of another country.


Real Exchange Rates

• The real exchange rate compares the prices of domestic goods and foreign goods in the domestic economy.

• If a case of German beer is twice as expensive as American beer, the real exchange rate is 1/2 case of German beer per case of American beer.

• The real exchange rate depends on the nominal exchange rate and the prices of goods in the two countries measured in local currencies.



• The real exchange rate is a key determinant of how much a country exports and imports.

Real exchange rate =

Nominal exchange rate Domestic price

Foreign price



• A depreciation (fall) in the Taiwan real exchange rate means that Taiwan goods have become cheaper relative to foreign goods.

• This encourages consumers both at home and abroad to buy more Taiwan goods and fewer goods from other countries.



• As a result, Taiwan exports rise, and Taiwan imports fall, and both of these changes raise Taiwan net exports.

• Conversely, an appreciation in the Taiwan real exchange rate means that Taiwan goods have become more expensive compared to foreign goods, so Taiwan net exports fall.


A FIRST THEORY OF A FIRST THEORY OF EXCHANGE-RATE DETERMINATION: EXCHANGE-RATE DETERMINATION: PURCHASING-POWER PARITYPURCHASING-POWER PARITY• The purchasing-power parity theory( 購買力平價稅 ) is the simplest and most widely accepted theory explaining the variation of currency exchange rates.

• Purchasing-power parity is a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.


The Basic Logic of Purchasing-Power ParityThe Basic Logic of Purchasing-Power Parity

• According to the purchasing-power parity theory, a unit of any given currency should be able to buy the same quantity of goods in all countries.

• The theory of purchasing-power parity is based on a principle called the law of one price.

• According to the law of one price, a good must sell for the same price in all locations.

• If the law of one price were not true, unexploited profit opportunities would exist.

• The process of taking advantage of differences in prices in different markets is called arbitrage.


The Basic Logic of Purchasing-Power ParityThe Basic Logic of Purchasing-Power Parity

• If arbitrage occurs, eventually prices that differed in two markets would necessarily converge.

• According to the theory of purchasing-power parity, a currency must have the same purchasing power in all countries and exchange rates move to ensure that

Nominal exchange rate Domestic price

Foreign price

1


Implications of Purchasing-Power ParityImplications of Purchasing-Power Parity

• If the purchasing power of the dollar is always the same at home and abroad, then the exchange rate cannot change.

• The nominal exchange rate between the currencies of two countries must reflect the different price levels in those countries.

Foreign price

Domestic price

Nominal exchange rate =


Implications of Purchasing-Power ParityImplications of Purchasing-Power Parity

• When the central bank prints large quantities of money, the money loses value both in terms of the goods and services it can buy and in terms of the amount of other currencies it can buy.


Money, Prices, and the Nominal Exchange Rate During the Money, Prices, and the Nominal Exchange Rate During the German HyperinflationGerman Hyperinflation

10,000,000,000

1,000,000,000,000,000

100,000

1

.00001

.00000000011921 1922 1923 1924

Exchange rate

Money supply

Price level

1925

Indexes(Jan. 1921 = 100)


Limitations of Purchasing-Power ParityLimitations of Purchasing-Power Parity

• Many goods are not easily traded or shipped from one country to another.

• Tradable goods are not always perfect substitutes when they are produced in different countries.


全球化對工作機會與薪資所得的影響全球化對工作機會與薪資所得的影響1. 八○年代中期以前，經濟、出口與薪資所得同

步成長，但九○年代以後，薪資所得成長遠遠落後於經濟成長與出口成長

2. 九○年代開始，資金與技術跨國移動障礙一一移除。台商赴中國投資、生產等同於「台商以中國勞工取代台灣勞工」的跨國勞動替代現象，導致台灣製造業及服務業薪資所得不成長，勞資雙方議價能力出現不對稱現象。


20002000 年後台灣對中國貿易（出口）依存度快速增加年後台灣對中國貿易（出口）依存度快速增加(1992-2008)(1992-2008)

0%

5%

10%

15%

20%

25%

30%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

出口依存度

貿易依存度


20002000 年後台商投資中國金額占我國年後台商投資中國金額占我國 GDPGDP 比重持續上比重持續上升升

0%

1%

1%

2%

2%

3%

3%

199119921993199419951996199719981999200020012002200320042005200620072008


我國對外投資以投資中國比重最高我國對外投資以投資中國比重最高中國香港英屬加

勒比海

日本美國歐洲

1995 44.61 4.06 15.11 0.36 10.13 2.44

1999 27.71 2.22 30.06 2.70 9.84 1.82

2000 33.93 0.62 29.26 4.06 11.21 1.63

2001 38.80 1.32 23.60 2.36 15.23 0.65

2002 53.38 2.31 21.79 0.33 7.99 2.14

2003 53.66 7.49 23.32 1.17 5.45 0.90

2004 67.24 1.35 11.19 1.45 5.40 0.60

2005 71.05 1.27 14.92 0.50 3.72 3.54

2006 63.91 2.27 15.24 0.09 4.05 3.88

2007 60.62 1.15 9.61 0.11 8.19 2.55

2008 55.83 2.27 16.23 0.87 7.88 1.93


各國對中國投資占其對外投資比重各國對中國投資占其對外投資比重

臺臺灣灣南南韓韓日日本本

22000000 3333..9933%% 1122..2222%% 22..0044%%

22000011 3388..8800%% 1111..2299%% 44..6644%%

22000022 5533..3388%% 2244..5555%% 44..8888%%

22000033 5533..6666%% 3333..2222%% 88..5599%%

22000044 6677..2244%% 3388..3377%% 1122..9966%%

22000055 7711..0055%% —— ——


20002000 年後，出口再度成為台灣經濟成長的主要動年後，出口再度成為台灣經濟成長的主要動力力

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

1970 1976 1982 1988 1994 2000 2006

出口/GDP


20002000 年後，淨出口成為台灣經濟成長最重年後，淨出口成為台灣經濟成長最重要的源泉要的源泉

-2

-1

0

1

2

3

4

5

6

7

65-69 70-74 75-79 80-84 85-89 90-94 95-99 00-04 05--08

民間最終消費政府最終消費固定資本形成毛額存貨增加淨輸出


家庭可支配所得年成長率

Year 第一分位組第二分位組第三分位組第四分位組第五分位組總平均 GDP per

capita

2000 -0.58 -0.44 0.01 1.15 0.25 0.27 3.24

2001 -11.35 -8.15 -4.95 -2.88 2.11 -2.56 -2.37

2002 4.55 2.63 0.52 -0.81 0.79 0.84 3.82

2003 1.43 1.28 0.18 1.60 0.01 0.66 1.75

2004 0.34 1.83 4.09 1.43 -0.46 1.09 4.81

2005 0.13 0.12 0.43 0.69 0.28 0.37 3.16

2006 2.21 1.57 2.10 2.91 1.70 2.07 3.40

2007 2.59 1.11 0.50 -0.34 2.16 1.20 5.61

平均 -0.09 -0.01 0.36 0.47 0.85 0.49 2.93

經濟成長未能反映在家庭可支配所得成長經濟成長未能反映在家庭可支配所得成長


Year 第一分位組第二分位組第三分位組第四分位組第五分位組

2000 0.68 1.29 1.59 1.94 2.41

2001 0.66 1.23 1.62 1.96 2.35

2002 0.7 1.25 1.62 1.98 2.32

2003 0.62 1.2 1.59 1.94 2.35

2004 0.6 1.21 1.59 1.93 2.34

2005 0.56 1.18 1.56 1.92 2.31

2006 0.59 1.19 1.59 1.9 2.32

2007 0.6 1.14 1.56 1.93 2.29

平均 0.63 1.21 1.59 1.94 2.34

每戶就業人數隨可支配所得而下降每戶就業人數隨可支配所得而下降


家庭儲蓄能力隨可支配所得而下降家庭儲蓄能力隨可支配所得而下降Year 第一分位組第二分位組第三分位組第四分位組第五分位組

2000 14733 68572 143820 262601 653888

2001 -4516 44315 110623 220922 682548

2002 -10302 37871 96355 201210 691365

2003 1652 54328 94783 218342 707347

2004 1829 42208 97299 204757 646909

2005 -1948 39360 90494 181829 657753

2006 183 40032 92770 213067 654288

2007 -1164 40711 99720 201380 698251

平均 58 45924 103233 213013 674043

Summary


• Net exports are the value of domestic goods and services sold abroad minus the value of foreign goods and services sold domestically.

• Net capital outflow is the acquisition of foreign assets by domestic residents minus the acquisition of domestic assets by foreigners.

Summary


• An economy’s net capital outflow always equals its net exports.

• An economy’s saving can be used to either finance investment at home or to buy assets abroad.

Summary


• The nominal exchange rate is the relative price of the currency of two countries.

• The real exchange rate is the relative price of the goods and services of two countries.

Summary


• When the nominal exchange rate changes so that each dollar buys more foreign currency, the dollar is said to appreciate or strengthen.

• When the nominal exchange rate changes so that each dollar buys less foreign currency, the dollar is said to depreciate or weaken.

Summary


• According to the theory of purchasing-power parity, a unit of currency should buy the same quantity of goods in all countries.

• The nominal exchange rate between the currencies of two countries should reflect the countries’ price levels in those countries.

Documents

© 2007 Thomson South-Western. Open-Economy Macroeconomics: Basic Concepts Open and Closed Economies –A closed economy ( 封閉經濟 )is one that does not interact