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October 18, 2016


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Neil Wilson

"is, by definition, equal to the gap between savings and investment."

Or alternatively equivalent to the amount of foreign savings - once you get away from the standard economist view of a country operating in one currency and nobody else operating in that currency.

In other words you stop treating people in Manchester, New Hampshire differently from those in Manchester, England.

Once you see Sterling Savings as an export product things become a lot clearer.

In a floating rate currency there can be no trade imbalance. It's just that one of the export products is 'invisible'.


It is total saving versus investment that is related to the current account balance. Savings can increase even if the savings ratio does not increase. This ccould happen if a rise in demand for our net exports leads to an increase in real income. Obviously the chance of this happening depends on how much slack there is in relevant sectors of the economy and how quickly resources (including labour) can move between sectors

Tony Maher

The sheer scale of the GFC (post 2008) suppressed global demand. A very big shock cannot be absorbed by a local depreciation in the same way that smaller one's can e.g. ERM exit (and potentially Brexit now). If 2008 was an atypical global event then discounting the likely impact of the current depreciation because of the poor responsiveness of the trade figures to the 2008 depreciation is surely questionable.


Warm words for Paul Krugman. But there is little doubt that the MIT project to formalise trade and international monetary economics has been little more than a macho and egotistical project and has certainly reduced our knowledge of exchange rates, how they are determined, and their causal links (in both directions) with trade more than it has added to it.

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