Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
International status and usage of the euro wikipedia , lookup
Foreign-exchange reserves wikipedia , lookup
Foreign exchange market wikipedia , lookup
Bretton Woods system wikipedia , lookup
Currency War of 2009–11 wikipedia , lookup
International monetary systems wikipedia , lookup
Currency war wikipedia , lookup
Purchasing power parity wikipedia , lookup
Fixed exchange-rate system wikipedia , lookup
Reserve currency wikipedia , lookup
The Price Competitiveness of U.S. Exports David Mead Senior Economist – International Price Program The Changing Value of the Dollar In economic theory, changes in the exchange rate should impact both price trends and volume trends of internationally traded goods and services. A weaker Dollar should lead to higher import prices, and lower export prices. A stronger Dollar should lead to the reverse. In reality, the weaker Dollar tends to put downward pressure on both the price indexes for U.S. imports and U.S. exports Matter of Perspective Currently, U.S. Exports are priced in U.S. Dollar Terms Only tells part of the story from the perspective of U.S sellers A better measure of how price competitive U.S. Exports are would be to look at the prices from the perspective of foreign buyers Matter of Perspective A falling U.S. Dollar will always lead to a higher Dollar price, even in the case of exports But, that doesn’t mean the price of U.S exports are becoming more expensive, just that U.S sellers are getting more, but less valuable Dollars for them From the perspective of foreign buyers, the lower U.S. Dollar means that U.S. exports are getting cheaper Impact of a Change in the Value of the Dollar In response to a weaker Dollar, foreign buyers of U.S. Exports require less of their own currency to pay the same dollar transaction price. The opposite will happen when the Dollar strengthens. Example A Canadian buyer might buy a U.S. export that goes up 5% in U.S. Dollar terms from the previous month But, let’s say over the same period, the value of the Canadian Dollar increases 10% against the U.S. Dollar From the buyer’s perspective, in Canadian Dollar terms, the item will be 5% cheaper Pass-Through Effects Studies have shown that about half of the passthrough effect of exchange rates will take place in the short-term (one to three months). In each case, the majority of the exchange rate change passes through to the foreign currency price The pass-through rate into the foreign currency price is higher for exports than imports, where more of the change passes through to the U.S. Dollar price MLR Focus Paper – March 2010 Last year, BLS published a focus paper titled “The Price Competitiveness of U.S. Exports” Paper looked at how the value of the Dollar impacted export prices in foreign currency as well as the value of U.S. exports Creating a Foreign Currency Export Price Index To convert Export Prices from U.S. Dollars to Foreign Currency Terms you need a measure of average exchange rates The Federal Reserve produces a trade weighted exchange rate index between the U.S. dollar and a set of major currencies Multiplying that Dollar price index by the exchange rate index yields an index of overall export prices in foreign currency terms Exports in Dollar terms vs. Foreign Currency Terms U.S. Dollar Exports And Foreign Currency Export Price Indexes, January 2009 - March 2010 Index Value (January 2009 = 100) 105.0 100.0 95.0 90.0 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 U.S. Dollar Exports BLS Corporate Orientation Foreign Currency Exports 10 Trends up Through February 2010 The U.S Dollar lost approximately 12% of it’s value against a basket of major currencies the final nine months of 2009 From the April 2009 through February 2010, U.S. exports in Dollar terms rose 4.0 percent But in foreign currency terms, export prices fell 5.4 percent Not surprisingly, cheaper export prices contributed to the value of U.S. exports rising 24 percent over the final nine months of 2009 Export Prices vs. the Value of Exports Millions of Dollars Total Dollar Value Of U.S. Goods Exports & Foreign Currency Export Price Index, January 2009 - February 2010 (Source for Total Exports: U.S. Bureau of Census, Foreign Trade Division) Foreign Currency Export Index based on January 2009 = 100 125,000 Index Value 110.0 115,000 100.0 105,000 90.0 95,000 80.0 85,000 70.0 75,000 65,000 60.0 Total Goods Exports (in Millions of Dollars) BLS Corporate Orientation Foreign Currency Exports 12 Exports in Dollar terms vs. Foreign Currency Terms Chart 1: U.S. Dollar Exports And Foreign Currency Export Price Indexes, January 2009 - March 2010 Index Value (January 2009 = 100) 120.0 115.0 110.0 105.0 100.0 95.0 U.S. Dollar Exports BLS Corporate Orientation Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10 Aug-10 Jul-10 Jun-10 May-10 Apr-10 Mar-10 Feb-10 Jan-10 Dec-09 Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 90.0 Foreign Currency Exports 13 What’s happened since the paper was published in March 2010 The U.S. Dollar has been down against most major currencies In Dollar terms, export prices have continued to rise But in foreign currency terms, prices have been relatively flat That has helped to make U.S. more competitive overseas, leading a rise in U.S exports Export Prices vs. the Value of Exports Millions of Dollars Chart 3: Total Dollar Value Of U.S. Goods Exports & Foreign Currency Export Price Index, January 2009 - February 2010 (Source for Total Exports: U.S. Bureau of Census, Foreign Trade Division) Foreign Currency Export Index based on January 2009 = 100 Index Value 110.0 145,000 135,000 100.0 125,000 90.0 115,000 105,000 80.0 95,000 85,000 70.0 75,000 65,000 60.0 Total Goods Exports (in Millions of Dollars) BLS Corporate Orientation Foreign Currency Exports 15 Impact of Exchange Rates on Disaggregated Indexes Even more information on the impact of exchange rates can be ascertained by disaggregating indexes by product categories Product area impact varies by the mix of U.S. trade partners for given item categories Take the example of imported Metalworking Machine Tools and imported Apparel Comparison of where items are imported from for Metalworking Machinery tools vs. Apparel 9.9% 21.0% 43.2% 14.2% Japan Europe China 21.6% 13.8% Other 49.5% China Other Asia 26.8% Latin America Other The Euro and Yen are the currencies that will have the greatest impact on imported metalworking machinery. Clothing and apparel imports will be impacted by a mix of Asian and Latin American currencies, most of which are tied to the Dollar. Average Exchange Rate Indexes and Foreign Currency Indexes Average Exchange Rate and Foreign Currency Indexes are necessary to compare exchange rate effects for disaggregated data. Average Exchange Rate Indexes measure the change in the price of a trade-weighted basket of currencies against the U.S. Dollar. They are multiplied by U.S. Dollar indexes to derive indexes in foreign currency terms. Foreign Currency indexes then measure U.S. import and export price trends in foreign currency terms. Foreign Currency Price Indexes FCPI n y ,t (USPI * AERI ) / 100 n y ,t Where, USPI = United States import or export price index Average Exchange Rate Indexes and Foreign Currency Indexes The International Price Program produced Average Exchange Rate Indexes and Foreign Currency Indexes up until 1992 Currently Looking to Bring them back as a Measure of the Competitiveness of U.S. Exports in Foreign Markets Contact Information David T. Mead Information & Analysis Section Chief Division of International Prices www.bls.gov/mxp 202-691-7154 [email protected]