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Published online by Cambridge University Press: 26 March 2020
The changes in the exchange rates of the major exporters of manufactures between 1967 and 1971 were followed by substantial changes in their export performance measured against trends before the realignment, indicating that the devaluations and revaluations were effective, contrary to some preliminary assessments. Changes in relative prices are a good explanation of the previous trends, as well as the basic reason for expecting effects from exchange rate changes. The results under fixed rates cannot therefore be applied under floating rates as these reduce, if they do not eliminate, relative price changes converted to a common currency.
(page 71 note 1) The method used is the same as that used in earlier NIESR measurements of the effects of the United Kingdom devaluation: R. L. Major, ‘Note on Britain's share in world trade in manufactures’, National Institute Economic Review, no. 44 (May 1968), pp 50-56; R. L. Major, ‘The competitiveness of British exports since devaluation’, National Institute Economic Review, no. 48 (May 1969), pp 31-39; NIESR, ‘The effects of the devaluation of 1967 on the current balance of payments’, Economic Journal, March 1972 Special issue, pp 442-464. For both techniques and data, I have borrowed heavily from this work.
(page 72 note 1) Data for 1955-69 are from OECD trade statistics and the Board of Trade, adjusted for under-recording of British exports; for 1970-74 from OECD, Trade by Commodities, Series B; for 1974 for the United States from Department of Commerce, Highlights of U.S. Export and Import Trade.
(page 72 note 2) After a devaluation, a fall in export prices, in foreign currency, may precede any increase in volume resulting from the more competitive price. This causes a temporary fall (or slow rise) in revenue, followed by a rise when the volume responds and some prices are adjusted up. The reverse holds in a revaluation. More detailed work for the United Kingdom suggests that most of this effect takes place within a year.
(page 72 note 3) Weights are partly from OECD, Economic Outlook, 10 (December 1971) p. 97 and partly NIESR estimates.
(page 73 note 1) Rates such as the SDR for which weights change with the value of the currency are not a substitute for a current market weighted index.
(page 74 note 1) For 1974, each quarter‘s figures (at annual rates, seasonally adjusted by the rates for each country's total manufactured exports) are found by using 1973 shares.
(page 74 note 2) These differences are discussed further under ‘Results’.
(page 75 note 1) Such a fall was noted and cited as ‘a continuing source of difficulty for some time’ in R. S. Gilbert, R. L. Major, ‘Britain's falling share of sterling area imports', National Institute Economic Review, no. 14, March 1961, pp. 18-54.
(page 77 note 1) Including the 1969 value for the United Kingdom or using t statistics in the test did not affect the result.
(page 78 note 1) The differences shown are those between actual and estimated exports for each year, taking no account of the fact that hypothetical exports are themselves different because the previous year's exports were increased; this method seems best for measuring the effect in each period on the previous trend, although it may not measure the cumulative effect on exports in each year.
(page 78 note 2) A recent study, Michael C. Deppler, ‘Some Evidence on the Effects of Exchange Rate Changes on Trade’, IMF Staff Papers, XXI, 3 (November 1974), pp. 605-636, using a similar but more aggregated estimation of markets and dummy variables for periods of exchange rate effects also finds relatively strong effects for the United Kingdom and France, with little effect in Germany.
(page 80 note 1) If non-price factors had moved the coefficient to the ‘wrong’ side of 1, if would reduce it.
(page 81 note 1) The countries may vary in the extent to which they adjust their prices to those of competitors. Jacques R. Artus in ‘The Behavior of Export Prices for Manufactures’, IMF Staff Papers, XXI, 3 (November 1974), pp. 583-604, found a difference between France, Germany and Japan, with a high dependence on competitors' prices, and the United Kingdom and the United States with a very low dependence. If their dependence has changed, their competitiveness may have changed, but this should be reflected in their relative rates or in the spread.
