Exchange-Rate Adjustmentsand the Balance of Payments

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PowerPoint slides prepared by:Andreea ChiritescuEastern Illinois University

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Effects of a dollar appreciation on a U.S. steel firm’s production costs when all costs are dollar-denominated

TABLE 14.1

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Effects of a dollar appreciation on a U.S. steel firm’s production costs when some costs are dollar-denominated and other costs are franc-denominated

TABLE 14.2

Hitachi’s global diversification permitted it to sell TVs in the United States without raising prices as the yen appreciated against the dollar.

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Coping with the yen’s appreciation: Hitachi’s geographic diversification as a manufacturer of television sets

FIGURE 14.1

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Effect of pound depreciation on the trade balance of the United Kingdom

TABLE 14.3

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Long-term price elasticities of demand for total imports and exports of selected countries

TABLE 14.4

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Depreciation flowchartFIGURE 14.2

Between 1980 and 1987, the U.S. merchandise trade deficit expanded at a rapid rate. The trade deficit decreased substantially between 1988 and 1991. The rapid increase in the trade deficit that took place during the early 1980s occurred mainly because of the appreciation of the dollar at the time, which resulted in a steady increase in imports and a drop in U.S. exports. The depreciation of the dollar that began in 1985 led to a boom in exports in 1988 and a drop in the trade deficit through 1991.

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Time path of U.S. balance of trade (billions of dollars) in response to dollar appreciation and depreciation

FIGURE 14.3

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Exchange rate pass-through into import prices after one year

TABLE 14.5

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Use of the U.S. dollar in export and import invoicing, 2002–2004

TABLE 14.6