The relationship between the exchange rate and the crisis


27/04/2010

Scientists have discovered a link between the rate of exchange and the economic crisis. A distinctive feature of the crisis was a stark contrast between the two countries with a huge deficit of foreign trade, such as the United States, and countries with an equally striking trade surplus, as in the case of China. This global imbalance is the result of a combination of factors, with both the researchers found, one of the key factors is the exchange rate. Such a conclusion was a professor at the University of Madrid, Juan Antonio Zeror (Juan Antonio Ceron), in a study entitled "The Economic Crisis: the role played by money circulation and exchange rates" (English "The Economic Crisis: What role do currencies and exchange rates play ? "), published in the Economic Journal Revista de Economia Mundial. The article took 2nd place prize Jose Luis Sanpedro Prizes.

Excesses of foreign trade has always existed, but never had they reached such a scale as in recent years, said the researcher. "Therefore, according to the law of foreign exchange rates, currency exchange rates will depend on the economic imbalance in world trade, and to a large extent on the recovery of production in each country and the most important consequences of restoration - new jobs," - said Zeror.

Before the crisis, the constant interest among economists studying macroeconomics use rates. But interest waned with the onset of the crisis. "When the crisis became politicized, some areas of the economy have gained more importance than others," - said the expert.

The role of major currencies

In the published paper, the economist tried to estimate the relationship between currency exchange rates and, with what success can not overcome the effects of the crisis. In his work, he used the most recent data available today. We live in an age when market driven exchange rates and long-term change under the influence of the evolution of the economy in the country. But in the short and medium term, on the exchange rate is influenced by other factors, such as interest on loans, international trade and the flow of capital, said the professor.

In any case, he said, we must not forget what a huge role he played in the global markets the dollar, due to the fact that it was used as the currency of international trade, taking the lion’s share of international transactions. However, it should be noted the increasing role of the Chinese currency. "With exports, the country has gained a great economic power, which in many ways is based on the exchange rate, especially given that the yuan is regulated by the state," - said Professor Zeror.

When the crisis began, the ball Spain one of the countries with the largest trade deficit. "The exchange rate of our currency depended not only on us, but from all the countries outside the euro zone, so we could not get any serious attempt to change the situation," - said the professor. He also drew attention to the fact that the impact of currency exchange rate is not so critical for Spain, because most of Spain’s partners in foreign trade are also included in the eurozone. What can be done to correct trade imbalances? "Stay more - this is what we have already begun to do, and increase the competitiveness of stitched goods on world markets in order to increase sales," - he explained. Hot news, science and technology, the only first-hand.

Original: Eurekalert.org


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