Friday, November 2, 2012

Bill Mitchell — External economy considerations – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.


Chapter 15 International Trade, Capital Flows and the Exchange Rate
[Note: This is the first rough layout and will evolve over the next few weeks]
Introduction
Bill Mitchell – billy blog
External economy considerations – Part 1
Bill Mitchell

3 comments:

Ramanan said...
This comment has been removed by the author.
Ramanan said...

Had the foreigners used their export income, which is denominated in $A to purchase other goods and services from Australia, then there would have been a trade balance.

A trade deficit thus means that the foreigners are increasing their nominal savings (which in this case manifests as Australian dollar denominated financial assets).


Have tried to get him straight on this but he never seems to learn.

Australian imports are invoiced more in USD than in AUD. So the claim that "their export income, which is denominated in $A" is not quite correct.

Also, it is perfectly possible for Australian residents to increase their liabilities in foreign currencies resulting in the foreigners as whole (net) increasing in their holding of liabilities of Australian residents but in a foreign currency when Australia is running a trade deficit.

Matt Franko said...

Ramanan,

Is this just because the Chinese run a huge trade surplus with the US and then use these USDs to buy coal from Australia?

Then the Australians use these USDs from the coal exports to buy consumer items from the Chinese as the Chinese readily accept USDs just as soon as their own Yuan?

How does it net out? Close to balance trade between Australia and China?

Resp,