20171129-NATIXIS-The_lesson_from_import_elasticities_and_import_prices_5页_660kb

Flash Economics Summary

Core Content

This document discusses the economic implications of exchange rate movements on import volumes and import prices in OECD countries. It highlights the limited effectiveness of devaluation and protectionist policies in reducing imports and the associated risks of inflation.

Main Points

1. Elasticity of Imports in Volume Terms to the Real Exchange Rate

• Low Sensitivity: OECD countries show a low elasticity of imports in volume terms to the real exchange rate, indicating that changes in the real exchange rate do not significantly affect the volume of imports.
• Estimated Elasticities: The elasticities for major OECD countries are as follows:
  • United States: 0.14
  • Canada: 0.23
  • United Kingdom: 0.09
  • Sweden: 0.10
  • Germany: 0.24
  • France: 0.09
  • Spain: 0.12
  • Italy: 0.06
  • Euro zone (excluding intra-zone trade): 0.12
  • Japan: 0.14
  • Australia: 0.26

2. Elasticity of Import Prices to the Nominal Exchange Rate

• High Sensitivity: Import prices in OECD countries are highly sensitive to the nominal exchange rate, with elasticities ranging from 0.3 to 1.04.
• Estimated Elasticities: The elasticities for major OECD countries are:
  • United States: 0.31
  • Canada: 0.77
  • United Kingdom: 0.59
  • Sweden: 0.50
  • Germany: 0.64
  • France: 0.59
  • Spain: 1.04
  • Italy: 0.87
  • Euro zone (excluding intra-zone trade): 0.34
  • Japan: 0.61
  • Australia: 0.72

3. Productive Specialisation and Value Chain Segmentation

• Significant Specialisation: The observed patterns are consistent with significant productive specialisation and substantial value chain segmentation among OECD countries.
• Corporate Relocation: Corporate relocation decisions are largely irreversible, meaning that once production is offshored, it is not easily brought back.
• Impact of Devaluation: A devaluation leads to an increase in import prices, which can cause inflation and reduce real wages.

4. Examples of Devaluation and Protectionism Effects

• Japan (2014): After the 2013 depreciation, import volumes remained stable, but prices increased significantly.
• United Kingdom (2016): Following the Brexit announcement, import volumes were not significantly affected, but import prices rose.

Key Information

• Devaluation Ineffectiveness: Devaluation does not reduce import volumes, but it increases import prices.
• Protectionism Ineffectiveness: Protectionist measures are also ineffective in reducing imports, as they do not alter the volume but may lead to higher prices.
• Inflation Risk: The rise in import prices due to devaluation or protectionism leads to inflation, which in turn reduces real wages.
• Irreversible Relocation: Once production is relocated, it is not easily reversed, indicating deep integration into global value chains.

Conclusion

• Strong Incentive Against Devaluation and Protectionism: Given the low elasticity of import volumes to exchange rate changes and the high elasticity of import prices, there is a strong incentive to avoid using devaluations or protectionist policies.
• Economic Implications: These policies can lead to inflation and a decline in real wages, which are detrimental to the economy.

Disclaimer

• Intended for Professionals and Qualified Investors: The document is intended for a professional and qualified investor audience.
• Confidentiality: It is strictly confidential and cannot be disclosed to third parties without prior written consent.
• No Personalized Recommendations: It does not constitute a personalized investment recommendation and is for general information only.
• No Liability: Natixis and its affiliates do not accept any liability for the distribution, possession, or delivery of the document.
• Regulatory Information: The document is subject to various regulatory frameworks in different jurisdictions, and recipients are required to comply with applicable laws.

Regulatory Information

• Supervision and Authorization: Natixis is supervised and authorized in multiple jurisdictions, including France, the UK, Germany, and Dubai.
• Regulatory Bodies: It is regulated by the Autorité de Contrôle Prudentiel et de Régulation (ACPR), Autorité des Marchés Financiers (AMF), Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), and Dubai Financial Services Authority (DFSA).
• Legal Disclaimer: The views expressed in the document are the personal views of the authors and do not necessarily reflect the views of Natixis or any of its affiliates.