تغییرات نرخ ارز و شرایط درونی اثرات تجارت در یک اقتصاد کوچک باز

This paper shows that the small-country assumption of dependent-economy models is unlikely to hold for many of the cases in which this class of models is used, for example, in the analysis of a terms of trade shock in the “commodity currency” models. When a shock affects most or all of the small countries exporting a commodity, the combined exchange rate effects will result in endogenous terms of trade changes even for those countries too small to individually affect world markets. The paper also explores the possible implications of these secondary terms of trade changes for the dependent-economy models.

Macroeconomic models of small open economies usually assume that a single small country will have little influence on the determination of price and quantity in world markets for its goods. This “small-country” assumption forms the basis of commonly used dependent-economy models such as those of Salter (1959), Swan (1960), and Dornbusch (1980). In these models, internal and external adjustment comes about through a change in the internal relative prices of traded goods in terms of non-traded goods. In a flexible exchange rate system, if the prices of non-traded goods are fixed or sticky, adjustment will occur through a change in the nominal exchange rate. One of the classic examples of the use of the dependent-economy models is in the analysis of a terms of trade shock in a small country that exports mainly primary commodities. This example is often used to explain why movements in the exchange rates of these countries follow changes in the prices of primary commodities, leading to the term “commodity currency”. As world prices are fixed in foreign-currency terms, the exchange rate change will have no subsequent or secondary effect on the terms of trade for the small country. This paper examines the conditions required for the small-country assumption to be maintained. It shows that the small-country assumption is unlikely to hold for many of the cases in which this class of models is used. If the exchange rate change is the result of a shock common to many small countries, as in the usual commodity currency case, the exchange rate change must be passed through to world market prices, with a subsequent endogenous change in the terms of trade. These second-round changes in market prices indicate that a larger movement in the nominal exchange rate, and consequently a greater and more prolonged degree of internal adjustment, will be required to restore equilibrium in the small-country models. The results suggest that, firstly, the exchange rates of commodity currency countries will be more variable than previously expected. Secondly, maintaining the full flexibility of the nominal exchange rate in this case becomes particularly important, as the primary and most rapid source of the shifts in the real exchange rate that generate internal adjustment. Furthermore, whatever the method of adjustment, the joint endogeneity generated between the real exchange rate and the terms of trade implies a much closer relationship over time than previously expected in these models. This is consistent with the strong relationships found empirically in many Australian studies.

This paper has shown that the small-country assumption is unlikely to hold for many of the cases in which this class of models is used. If the exchange rate change is the result of a shock common to many small countries, as in the usual commodity currency case, the exchange rate change must be passed through to world market prices, with a subsequent endogenous change in the terms of trade. When these endogenous terms of trade effects are added to the small-country models, they induce subsequent or “second-round” changes that magnify the degree of internal adjustment, and consequently the size of the exchange rate change, that will be necessary to restore equilibrium. The variability now expected in the exchange rate will therefore increase, as will the importance of allowing the exchange rate to float freely to most rapidly achieve the adjustment required. Similarly, the joint endogeneity generated between the real exchange rate and the terms of trade implies a much closer relationship over time than previously expected in these models. This is consistent with the strong relationships found empirically in many Australian studies.