tag:blogger.com,1999:blog-8595404115121834255.post3313050523320842347..comments2024-03-28T03:24:05.678-04:00Comments on NAKED KEYNESIANISM: Where is the elasticity? (or more on devaluation and growth)Matias Vernengohttp://www.blogger.com/profile/09521604894748538215noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8595404115121834255.post-17341221046528469192013-08-16T00:34:17.228-04:002013-08-16T00:34:17.228-04:00On the empirics, I think the state of the debate i...On the empirics, I think the state of the debate is expressed perfectly by <a href="http://www.ems.bbk.ac.uk/faculty/smith/bopfinms.pdf" rel="nofollow">this mainstream paper</a>: ""A typical nding in the empirical literature is that import and export demand elasticities are rather low, and that the Marshall-Lerner (ML)<br />condition does not hold. However, despite the evidence against the ML condition, the consensus<br />is that real devaluations do improve the balance of trade."<br /><br />The empirics say elasticities are low, but the "consensus" says that they're high.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-59481784254134088182013-08-16T00:30:59.005-04:002013-08-16T00:30:59.005-04:00This is a very important point and also highly rel...This is a very important point and also highly relevant t the Euro crisis. The assumption that the Marshal-Lerner condition is satisfied is critical to the idea that exit and devaluation would reliably solve the southern countries balance of payments problems, and to the idea that higher German inflation is necessary if imbalances are to be reduced without exit. If as you say -- and I totally agree -- income effects are really all that matters, then exit will not necessarily do much good for Greece and the rest, and what Germany needs is higher incomes, not higher prices.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-88861057327254092652013-08-10T13:49:20.082-04:002013-08-10T13:49:20.082-04:00To be more exact, there is overwhelming evidence t...To be more exact, there is overwhelming evidence that import elasticities with respect to the real exchange rate are significant, statistically and economically. <br /><br />As for supply elasticities for exports, the evidence is more mixed; some studies show small elasticities, others show more sizeable ones.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-57460370352716868762013-08-09T11:14:02.696-04:002013-08-09T11:14:02.696-04:00Work to solve BOP problems? It might if no other c...Work to solve BOP problems? It might if no other country depreciates much, and if there is no wage resistance. The side effect if there is is inflation. So if you are really concerned with inflation, as Frenkel is for the Argentine case, then depreciation is a problematic solution. He would tell you need fiscal and monetary contraction to compensate the depreciation. But that would only work if inflation is caused by excess demand. But the economy is not growing much, so even Frenkel admitted that inflation is not demand pull. You cannot have the cake and eat it too.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-39184871124593637362013-08-09T11:10:19.818-04:002013-08-09T11:10:19.818-04:00Hi, actually there is very little evidence for the...Hi, actually there is very little evidence for the elasticities. What you have is that sometimes depreciations do go hand in hand with growth. As I noted in Argentina in 2002, since other factors were at play (expansion of wages and government social spending, and plenty of spare capacity). So the point is that sometimes, under specific conditions, depreciation is good. But sometimes it does not work. It's not a panacea.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-72539657233005031982013-08-08T01:39:19.850-04:002013-08-08T01:39:19.850-04:00There is plenty of evidence that real depreciation...There is plenty of evidence that real depreciations reduce imports and increase exports, which is exactly what one needs when facing a balance of payments constraint while unwilling to pursue contractionary fiscal policy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-2499818328141827802013-08-07T20:16:49.607-04:002013-08-07T20:16:49.607-04:00Hi Matias,
great article. One question, do you t...Hi Matias, <br /><br />great article. One question, do you think that depreciation coupled with government programmes aimed at helping those whose income gets or might get hit by the depreciation could do the trick? <br /><br />Thanks for your time<br /><br /> Anonymousnoreply@blogger.com