The Change of The Exchange Rate And The Falling Oil Price.docx
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The Change of The Exchange Rate And The Falling Oil Price.docx
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TheChangeofTheExchangeRateAndTheFallingOilPrice
TheChangeofTheExchangeRateAndTheFallingOilPrice
1Introduction
Inanopeneconomy,thevibrationofexchangeratewillcausenotonlythechangeoftheexternalequilibrium,butalsothechangesinmacroeconomic,suchasinvestment,consumption,price,moneysupply,employment,etc.However,itisstillcontroversialtojudgetherelationshipbetweenthechangeoftherealexchangerateandeconomy.During2014and2015thefallingoilpricehavehadatremendouseffectonthewholeworld(Lescaroux&Mignon,2008,p343-380).Lowoilpricesfirstlydamagedtheeconomyoftheoilexportingcountrieswhichsharedahighfiscaloilpricesandrecedingdomesticeconomy,andthenaffectedotherpetroleumexportingcountrieswithlowcostofoilproduction.Whileforoilconsumingcountriesitwasmoreadvantagesthandisadvantages.Thispaperwillintroducetheinfluenceofthechangeoftherealexchangerateoneconomicgrowthbydividingtheinfluenceasinfluenceofthepriceeffectofexchangeratefluctuation,influenceoftherelativewealtheffectofexchangeratefluctuationandinfluenceoftheinterestrateeffectofexchangeratefluctuation.Andthentheinfluenceoffallingoilpricewillbeintroducedindetail.
2Influenceofthechangeoftherealexchangerateoneconomy
Theclassicaleconomicgrowththeoryemphasizesfactorslikecapital,laborandtechnologywhichdirectlyaffecteconomy.Whiletherearealsomanyotherimportantfactors,suchasexchangerate,economicfluctuationsandsystemwillalsoindirectlyaffecteconomicgrowth(TyersRod&ZhangYing, 2014,p1-32).Undertheopeneconomy,thevibrationofexchangeratewillcausenotonlythechangeoftheexternalequilibrium,butalsothechangesinmacroeconomic,suchasinvestment,consumption,price,moneysupply,employment,etc.anditseffecttotheeconomicgrowthisinevitable.Asaresult,theexchangeratepolicyisoneofthekeyissuesforthepolicymakerofbothdevelopingcountriesanddevelopedcountries(Manalo,Perera&Daniel,2015,p53-62).
However,itisstillcontroversialtojudgetherelationshipbetweenthechangeoftherealexchangerateandeconomicgrowth.Accordingtothetraditionaltheory,thecurrencydevaluationinacountrycanproducethespendingconversioneffect,which,underthedepreciationoftherealexchangerateaccompanyingwiththedecreaseofforeigncurrencypricesandincreaseofdomesticcurrencypricestowardsthesamegoods,willpromoteexportsandprohibitimport.Onthecontrary,theappreciationoftherealexchangeratewillurgethespendingconversioneffecttoreducetheexportlevelandtheoutputoftradegoodsandworsenthetradebalancedisruptingthedevelopmentandstabilityofthecountry’seconomy(Lima,Gilberto&Gabriel,2013,p651-674).
Somebodyholdanoppositeview.Caves,FrankelandJonesbelievedthatacountry,ingeneral,devalueditscurrencyduetoashortageofforeignexchange,whichcouldconfirmaviewthatthedevaluationofthecurrencytightensratherthanexpandsoutputsandemployments(Caves,Frankel&Jones,1996).Fromthetwoaspectsoftotalsupplyandtotaldemand,theysummarized10channelsthatthedepreciationofthecurrencyleadstotightness.Amongallthesechannels,somearehappenedintheindustrializedcountries,someareinsmallanddevelopingcountries(Kandil,2015,p99-120).Therefore,exploratingtheconditionsandlawsthattheexchangerateactsoneconomicgrowthindepthisachallengingresearchdirection.
2.1Influenceofthepriceeffectofexchangeratefluctuationoneconomy
Thepriceeffectoftherealexchangeratefluctuationsisthechangeoftherelativepriceofdomestictradablegoodsandnontradablegoodsinacountry,whichhasanimportantinfluenceontheproductionanddemandoftradablegoodsandnontradablegoodsaffectingtheeconomicgrowthbyrelocatingtheproportionofsocialresourcesinthetradablegoodssectorandthenontradablegoodssector.Priceseffectoftherealexchangeratefluctuationsismainlyachievedthroughtwowaysasbelow.
Thefirstpathisthemicrowaywhichgoesthroughtheinternationalimportandexporttrade.Changesofimporttradeandexporttradepricetransferthedomesticdemandandchangethecostswhichultimatelyimpactthepriceofdomesticproduction.Takingthedepreciationofexchangerateasanexample,therealexchangerate’sdepreciationcancauserelativeincreaseofthedomestictradablegoodsandrelativedecreaseofthedomesticnon-tradablegoods,thusstimulatingtheproductionofdomestictradablegoodsandinthemeantimeincreasingthedemandofthedomesticnon-tradablegoods,reducingthedemandforforeignproducts.SoThecountry'ssocialresourcesmovefromthelowproductivityofthenontradablegoodssectortotherelativelyhighproductivityofthetradablegoodssector,therebystimulatingthecountry'seconomicgrowth.
Thesecondpathisthemacroeconomictransductionpathwaywhichismainlyachievedthroughthecountry'sforeignexchangereservesandmoneysupply.Theexchangeratechangesaffectforeigndirectinvestmentandtheflowofinternationalhotmoneythroughitsimpactonrelativepriceofdomesticandforeignassets,thusaffectingacountry'sforeignexchangereserves.Inasituationthatthecountry'scentralbankdoesn’tcompletelyaccomplishmonetarysterilization,thecountry'smoneysupplywillchange,theincreaseordecreaseofmoneysupplythenincreasethedomesticprice.
2.2Influenceoftherelativewealtheffectofexchangeratefluctuationoneconomy
Thewealtheffectofexchangeratechangeistheprocessthatexchangeratechangeinfluencetheassetsoftheprivates.Exchangerate’sdevaluationreducethewealthoftheirownresidents,onthecontraryexchangerateappreciationmakestheincreaseofthewealthofthecountry'sresidents.Exchangeratedepreciationincreasethewealthforeignresidentsusingforeigncurrencyandexchangerateappreciationmakesthedecreaseofthewealthoftheforeignresidents.Inthiswayexchangeratefluctuationimpactforeignanddomesticresidents’consumptiondemandandinvestmentdemandonthedomesticproduct,andultimatelyaffectthecountry'seconomicgrowthprocess(Froot&Stein,1991,p1191一1217).
2.3Influenceoftheinterestrateeffectofexchangeratefluctuationoneconomy
Acountry'sexchangerateandinterestratearerespectivelytheforeignpriceandtheinternalprice.Exchangeratefluctuationwillcausechangeinthedomesticrealinterestrateandthenwillaffectdomesticeconomicgrowth.ObstfeldandRogoffbelievethatthereisacloseconnectionbetweentherealexchangerateandtherealinterestrate,theythinkthechangequantityofrealexchangerateisequaltothedifferencebetweenthetwocountries'realinterestrates(Obstfeld&Rogoff,1996,p23-25).Theyemphasizethatthechangeofthemoneysupplyingeneralizedconceptionhasagreatinfluenceontherealinterestratewhosechangecanleadtothefluctuationoftherealinterestrate.Simultaneouslychangesinrealinterestratesalsoreflectsthefluctuationofexpectedrealexchangerate.Whenacountry'srealexchangeratedepreciationcausesthebigdifferenceandgapbetweenthedomesticrealinterestratesandforeignrealinterestratetoincreasestoawfuldegreeandhardlytorecoverinashortterm,thedomesticrealinterestratesmustdecline,whichincreasesthedomesticinvestmentdemandandforeigninvestmentdemandtowardsthecountryandpromotesthecountry'seconomicgrowth.
3Influenceoffallingoilprice
TheshalegasrevolutionledtoasubstantialincreaseinoilproductioncapacityintheUnitedStatescausinginternationaloilmarketsupplyexceedsdemandwiththetwoobvioussignsofstrongproductioncapacityandexcessoilreservoirsinresentyearsasshowninFig1.BecausetheGCCcountriesledbySaudiwerereluctantto
Fig1Supply-demandbalance2002.3-2015.3
watchtheirmarketshareoccupiedandsotheynolongercutbackproductiontoinsuretheoilpriceandtoaddinjurytoinsult,facingwiththeworldeconomicweaknessandthehigherdollarindex,thenewlowoilpricesseemedtobeinevitableandkeptanewbalanceasshowninFig2(WangQiang&LiRongrong,2015,p1186-1192).Lowoilpricesfirstlyexertedstrongimpactontheoilexportingcountrieswhichsharedahighfiscaloilpricesandrecedingdomesticeconomy,andthenaffectedotherpetroleumexportingcountrieswithlowcostofoilproduction(Eslamloueyan&Kia, 2015,p842-855).Whileforoilconsumingcountriesitwasmoreadvantagesthandisadvantages.
Fig2Worldoilpricetrend2014.7-2015.3
3.1Influenceoffallingoilpriceonoilexportingcountries
Lowoilpricesingeneralisadifficultproblemfortheoilexportingcountries,thelong-termfallingoilpricehasreducedalltheoilexportingcountriesincomeandforeigntradecausingadverseeffectondomesticeconomicpolitics.Buttheimpactvariedfromthethedifferenceofspecificcircumstanceswhichcanbedividedintotwocategories:
Thefirstoneistheoilexportingcountrieswhichsharedahighfiscaloilpricesandrecedingdomesticeconomy(Cologni&Manera,2014p68-79).NoneisbetterthanVenezuelaastheexampleforthatkindofcountry.UndertheadministrationofChavezthegovernmentlonglyimplementdistorteddomesticoilmarketpolicy,resourcenationalismandoilsocialismpolicywhichbroughttheresultthatnationalfinanceandthenationaloilcompanieshadalargenumberofdeficits,oilproductionwasweakandpoliticalandeconomicturmoilwasbrewedasshowninFig3.Tomaintaintheexistingpolicyandpreventtheeconomyfromcollapse,oilprice,valuedbyanumberofagencieswi
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