Syndicate content

trade imbalances

What Do Chinese Exchange Rates and German Wages Have in Common?

Jamus Lim's picture

They have both been blamed for being the primary mechanism that prevents the adjustment of their trade imbalances, of course.

What this (admittedly crude) caricature papers over, however, is the ultimate necessity for any proximate adjustment mechanism to operate on one of the levers that constitutes the real exchange rate. Recall, this real exchange rate (q) is defined as

q = ep*/p,