Comments on Peter Martin "Election 2016: GDP growth nowhere near as good as it seems, but it'll do for the prime minister", 1/06/2016
It seems there is a need to incorporate the very different effects on the living standard of changes in the terms of trade in the GDP measure. This is because that changes in the terms of trade is quite qualitatively different from changes in domestic relative prices irrespective they are inflationary or deflationary.
While changes in prices generally have the effects of transfering wealth from one group to another, the effects have quite different impacts if they occur through changes in the terms of trade.
Changes in prices purely domestically, the transfer of wealth is within a country and therefore they total wealth of the nation has not changed.
When changes in the terms of trade, the transfer, however, is between two different nations. As a result, the nation's wealth will increase if the terms of trade increases and it will decrease with the deterioration in the nation's terms of of trade.
To conclude, there should be some measure to distinguish these two kind of changes in relative prices to capture the changes in the terms of trade on a nation's living standard for any given real GSP growth as currently measured.
Showing posts with label terms of trade. Show all posts
Showing posts with label terms of trade. Show all posts
2010-04-20
Worsening terms of trade for China
Second comments on Yiping Huang “China needs to adjust its monetary policy now”, 18/04/2010, http://www.eastasiaforum.org/2010/04/18/china-needs-to-adjust-its-monetary-policy-now/comment-page-1/#comment-112078
Further to my comments yesterday, it seems that so far we all have ignored an important point that is the change in terms of trade detrimental to China, in addition to the volume effects on its current account balance.
As Asian economies including China and India expand, commodity and oil prices are moving up and fast. We have heard reports that iron ore prices have doubled for major Australian miners, that means possibly a new record, given that the last year’s fall in price was about a third from its record high. Oil prices have been above $US80 and are trending up.
The sluggish demand from most industrialised countries mean falling or steady prices for their imports of labour intensive and manufactured goods that are the main exports from China.
This means a sharp deterioration in China's terms of trade is appearing, which will have serious effects on Chinese businesses and its economy including increasingly large current account deficits over the coming months and possibly years to come.
That indicates that it will be economic suicide to appreciate the Chinese currency now.
Further to my comments yesterday, it seems that so far we all have ignored an important point that is the change in terms of trade detrimental to China, in addition to the volume effects on its current account balance.
As Asian economies including China and India expand, commodity and oil prices are moving up and fast. We have heard reports that iron ore prices have doubled for major Australian miners, that means possibly a new record, given that the last year’s fall in price was about a third from its record high. Oil prices have been above $US80 and are trending up.
The sluggish demand from most industrialised countries mean falling or steady prices for their imports of labour intensive and manufactured goods that are the main exports from China.
This means a sharp deterioration in China's terms of trade is appearing, which will have serious effects on Chinese businesses and its economy including increasingly large current account deficits over the coming months and possibly years to come.
That indicates that it will be economic suicide to appreciate the Chinese currency now.
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