domingo, 2 de novembro de 2014

ACP and JBS idea

It features in Estadão today.

These guys said: hey, the real Exchange rate is given by the P_tradables/P_ntradables ratio, and this may some times differ from the more usual (P_ext*E)/P_domestic measure. Whilst the latter has depreciated recently, the former has not. That may explain the resilience of Brazil´s big C.Account déficit.

I concede it is a good point...

But as always the aforementioned fellas seem to lack basic knowledge of microeconomics when they begin to explain their results. JBS for instance says that reduction in durable goods taxes Brazil experienced explains part of the poor trade balance results. He seems to be reasoning like this: lower prices for these tradable goods is equivalent to an appreciation of the real Exchange rate: it heightens demand and thus worsens the trade balance. Lamentably, FG applauds.

This is woefully wrong, though. He seems to be reasoning like this: lower prices for these tradable goods is equivalent to an appreciation of the real Exchange rate: it heightens demand and thus worsens the trade balance. But anyone who has studied economics 101 knows that tax cuts never lead to lower after-tax prices for producers. Actually that´s why production increases after a tax-cut by the way. The after-tax tradable price has actually increased, my dear J. I have the impression you thought a tax cut only boosted demand. To be candid, I am pretty sure you thought like that.

2 comentários: