Try to compare the viewpoints of elasticity theory, absorption theory and monetary theory on the role of local currency depreciation in the adjustment of international payments. \x0d\ A: (1) Elasticity theory, absorption method and monetary theory \x0d\ (1) Elasticity method: Elasticity theory was founded by Joan, an economist at Cambridge University, England, against the background of the total collapse of the international gold standard in 1930s. Robinson developed the theory of balance of payments adjustment based on Marshall microeconomics and local equilibrium analysis method. Later, it was further improved by American economist A.P. Lerner and others. Elasticity analysis theory is a kind of balance of payments theory suitable for paper currency circulation system, which mainly studies the conditions of successful currency depreciation and its influence on trade balance and terms of trade. This theory abandons the import and export of labor services and international capital flow, and the trade balance is equal to the balance of payments, and assumes that the supply elasticity of import and export commodities is infinite. On this basis, it is theoretically deduced that the improvement of the trade balance by currency depreciation depends on the establishment of Marshall-Lerner condition (that is, the sum of import and export demand elasticity is greater than 1) and the size of time lag effect (that is, J curve effect). \x0d\ (2) absorption method: also known as expenditure analysis method, absorption theory is the economist S? s？ Alexander proposed it for the first time in 1952 "The Impact of Devaluation on Trade Balance". Absorption theory is a theory to explain the balance of payments from the perspective of national income and domestic expenditure. Based on Keynesian economic theory, it derives its basic formula B=Y-A from the national income equation. On this basis, Alexander believes that the fundamental reason for the imbalance of international payments lies in the imbalance of income and absorption, and any policy of imbalance of international payments should be evaluated from the perspective of income and absorption. \x0d\ (3) Monetary method: the balance of payments is essentially a monetary phenomenon, and the key to determining the balance of payments is the relationship between money supply and demand, which is a balance of payments theory. Monetary theory refers to the balance of payments theory that the supply and demand of money determine the balance of payments of a country. Under strict assumptions, monetary theory deduces the most basic equations. Therefore, monetary theory emphasizes that the balance of payments is essentially a monetary phenomenon, and the key to determining the balance of payments is the relationship between money supply and money demand. The imbalance of international payments can be solved by monetary policy. Other policies to balance international payments, such as currency devaluation, tariffs, direct control, etc. Only by increasing the nominal money demand relative to the money supply or reducing the money supply relative to the nominal money demand can the balance of payments be improved. \x0d\ (II) Comparison of depreciation effects \x0d\ Elasticity theory, absorption theory and monetary theory all analyze the economic effects of currency depreciation. Exchange rate is an important variable in a country's economy, and its changes have a wide impact not only on trade balance, but also on domestic economy. Because the three theories have different assumptions, theoretical bases and basic viewpoints, they also have their own characteristics in the analysis of currency depreciation. Starting from three theoretical assumptions and viewpoints, this paper compares their expositions on depreciation effect. \x0d\ (1) The impact of depreciation on the balance of payments \x0d\ 1 The elasticity theory assumes that the supply of import and export commodities is completely elastic, that is, both exports denominated in local currency and imports denominated in foreign currency are provided at constant prices. In this way, whether the currency devaluation can improve the trade balance depends on the price elasticity of import and export demand. Assume that the elasticity of export demand is 0 and the elasticity of import demand is 0. There are three possibilities for the combination of two kinds of demand elasticity: \x0d\ 1 currency depreciation is beneficial to improve the trade balance; \x0d\ 2 Currency depreciation has no effect on trade balance; \x0d\ 3 Currency devaluation will worsen the trade balance. \x0d\ The first possibility mentioned above is "Marshall-Lerner condition", that is, the sum of price elasticity of import and export demand is greater than 1. Currency devaluation is a necessary condition for improving trade balance. \x0d\ Even if Marshall-Lerner conditions are met, depreciation cannot immediately lead to the improvement of trade balance. In the short term, because it takes some time to master market information, expand exports or cut imports, that is, there is a "time lag" problem, depreciation may make the change of trade balance go through the process of deterioration first and then improvement. The curve description of this process is very similar to the English letter "J". Therefore, the process of changing the trade balance due to the time lag after devaluation is called "J-curve effect". \x0d\ 2 According to the absorption theory, currency depreciation can only affect the trade balance in two ways: a) currency depreciation leads to the change of the country's production, and the difference between income change and income-induced absorption change leads to the change of the trade balance; B) Currency devaluation can change the real absorption associated with any given real income level. \x0d\ The actual impact of currency devaluation on the balance of payments will depend on three aspects: a) the direct impact of devaluation on actual income; B) the size of the marginal absorption tendency; C) Direct impact of devaluation on absorption. \x0d\ The absorption theory investigates the influence of currency depreciation on trade balance under the conditions of "insufficient employment" and "full employment" respectively: \x0d\ 1. The influence of currency depreciation on trade balance under the conditions of "insufficient employment". Underemployment means that the country has idle resources. In this way, the devaluation of the currency will make the price of the country's export commodities denominated in foreign currency fall in the international market, thus stimulating the demand for export commodities and expanding exports, while the import price denominated in local currency will rise and the import will fall, thus improving the balance of payments situation. \x0d\ Second, the impact of currency depreciation on trade balance under the condition of "full employment". Full employment means no idle resources. In this case, improving the balance of payments can only be achieved by reducing the total absorption. According to the absorption theory, devaluation will lead to the increase of import price, which will lead to the increase of domestic price level, and then lead to the decrease of the total absorption of the country and the improvement of the balance of payments. \x0d\ Generally speaking, depreciation needs the coordination of fiscal policy and monetary policy to reduce domestic expenditure and transfer resources from domestic expenditure to export sector, thus successfully improving the balance of payments and maintaining internal and external balance \x0d\ 3 Monetary theory has the following basic formula when investigating the impact of depreciation on the balance of payments: \x0d\ In the above formula, e is the foreign exchange rate (direct quotation). When the domestic currency depreciates, the foreign exchange rate (E) will rise. If the E value rises, the domestic price of tradeable goods will increase first, and the price of nontradable goods will also increase through the substitution of tradeable goods and nontradable goods, so the general price level (P value) will also rise. When the value of e and the value of p rise at the same time, in order to make both sides of the equation equal, f(y, I) either decreases, which means that the money balance decreases. Either an increase means an increase in nominal money demand. According to the basic equation of monetary theory, when the nominal money demand () rises, the balance of payments is improved. However, the necessary prerequisite for the improvement of the balance of payments is a net increase in nominal money demand relative to the domestic money supply. Therefore, the impact of currency depreciation on the balance of payments is temporary. In the long run, the key to improving the balance of payments is to control the money supply. \x0d\ (2) Impact of depreciation on domestic economy \x0d\ Elasticity theory, based on Marshall microeconomics and partial equilibrium analysis method, reveals the mechanism that exchange rate changes affect import and export supply demand by changing the relative prices between domestic and foreign products and the relative price changes between domestic trade departments and non-trade departments, and demonstrates that depreciation can improve Marshall-Lerner conditions of international payments under strict assumptions, that is, the sum of import and export supply elasticity is greater than 1. Based on Keynes's macroeconomic theory, the absorption theory analyzes the balance of payments and many variables of the whole national economy. Therefore, its analysis of the impact of currency depreciation on the balance of payments is based on the analysis of the domestic economic impact of currency depreciation. Monetarism is based on monetarism and pays attention to the monetary level. When analyzing the devaluation effect, monetary theory mainly analyzes the influence of devaluation on the relationship between domestic money supply and demand, and then on the balance of payments. The change of domestic money supply and demand will also have a significant impact on a country's domestic economy. Therefore, it is necessary to compare the impact of devaluation on domestic economy among elasticity theory, absorption theory and monetary theory. \x0d\ 1 The elasticity theory focuses on the conditions of successful currency devaluation and its influence on the trade balance and terms of trade. On the premise of strict assumptions, this theory deduces that the improvement of currency depreciation on trade balance depends on the establishment of Marshall-Lerner condition (the sum of price elasticity of import and export demand is greater than 1) and the size of time lag effect (that is, J-curve effect). In addition, depreciation will bring about changes in relative prices and will lead to improvement or deterioration of terms of trade, which mainly depends on the elasticity of supply and demand of import and export commodities. When the product of the supply elasticity of imported goods and the supply elasticity of exported goods is less than the product of the demand elasticity of imported goods and the demand elasticity of exported goods, depreciation is helpful to improve the terms of trade. The elasticity analysis method corrects the viewpoint that currency devaluation will definitely improve the balance of payments, and correctly points out that currency devaluation can only improve the function and effect of trade income if it meets certain elasticity of supply and demand of import and export commodities. However, the elasticity analysis method also has its inherent defects and limitations: a. The elasticity theory limits the balance of payments to the balance of trade, ignoring import and export services, current transfer and capital and financial projects; B. The theory adopts the method of partial equilibrium analysis, ignoring the influence of exchange rate changes on the general price level and national income; C. The hypothesis of this theory is too strict, and it is difficult to apply to practical application because the elasticity of import and export commodities is difficult to measure; D. the secondary inflation effect after depreciation is not considered; ⑤ There is no clear distinction between the possible consequences of different currencies. \x0d\ 2 According to the absorption theory, depreciation acts through income and absorption, and depreciation acts on both income and absorption. The income effect of depreciation is mainly reflected by idle resources effect, terms of trade effect and resource allocation effect. Generally speaking, when a country has idle resources and its currency depreciates, the price of its export commodities denominated in foreign currency drops, so the demand for commodity exports increases and the trade balance improves. The improvement of trade balance doubles national income through foreign trade multiplier. On the other hand, the increase of export demand and profit will transfer resources from inefficient domestic production departments to efficient export departments, and improve the efficiency of resource allocation, especially when a country's micro-economy is distorted and resource allocation is in a non-optimal state, this kind of resource reallocation will bring Pareto improvement and raise the national income level. \x0d\ When the economy is fully employed, resources are optimally allocated, and the marginal absorption tendency is greater than 1, currency depreciation mainly has an effect on absorption. The absorption effect of depreciation is mainly reflected in cash balance effect, income redistribution effect and money illusion effect. According to the absorption theory, under the condition of full employment, depreciation will increase the domestic price level. Rising prices will reduce the actual cash balance, and people will either reduce their expenses or sell their assets. Therefore, in the commodity market, consumption will decrease; In the money market, interest rates rise and investment decreases. Therefore, devaluation will reduce the level of domestic expenditure. In addition, rising prices will further reduce the level of domestic expenditure through the income redistribution mechanism and money illusion. \x0d\ In short, the absorption theory holds that the impact of devaluation on the domestic economy is related to the objective economic operation state. When a country is underemployed, devaluation helps to increase national income and improve the level of employment. When a country is in full employment, the impact of depreciation on the domestic economy is mainly caused by rising prices and reducing total domestic expenditure. \x0d\ 3 Monetarism believes that devaluation will first increase the export price of tradable goods, and the price of nontradable goods will also rise through the substitution of tradable goods and nontradable goods, so the general domestic price level will rise. An increase in the price level will lead to a decrease in the real money balance. The reduction of the real money balance will have many influences on the real economy: in the money market, people's demand for nominal money increases and the money demand curve rises. When the money supply remains unchanged, it will bring about an increase in interest rates; In the bond market, the price increase makes people's demand and supply for bonds increase, but the increase in demand is less than the increase in supply. As a result, bond prices fell and interest rates rose; In the commodity market, the reduction of real money balance will slow down people's excessive demand for goods. Therefore, the decline of the real money balance means the decline of consumption and investment, which in turn will reduce the national income and price level. This shows that depreciation has a tightening effect on the domestic economy.