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Daily Archives: May 3, 2008

China’s Real Effective Exchange Rate

BIS calculated China’s real effective exchange rate since 1994. China had a close peg with US dollars since late 90s and broke off the peg in mid 2006, and accelerated its appreciation pace.

Dutch Disease?

Are we gonna see another “Dutch Disease” (the boom and bust of oil-led business cycle) happening soon in the Gulf?

source: Brad Setser’s blog

Consider the following graph, which shows the Middle East’s oil export revenues over time.* For the calculations, I assumed oil will average $120 a barrel in 2008. That is on the high side – as oil would have to average more than $120 a barrel over the remainder of the year to bring the annual average up to $120. On the other hand, oil keeps on rising …

* I calculated oil export revenues by multiplying the oil price (using the IMF’s data) by a country’s net oil exports (using the BP data set)

Looking at nominal dollars though can be a bit deceptive. Relative to world GDP, the Middle East’s surplus is actually a bit smaller this time around.

Real oil prices are back where they were in 79-80. But the world has become a bit less oil-intensive over time. A barrel of oil produces more output now than in the early 80s – or, alternatively, it takes a bit less oil to generate a dollar of output.