<p>As requested in comments:</p>

<p>It is a matter of <em>which</em> other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes. </p>

<p>However exchange rates do not exactly follow relative inflation in different economies; other factors such as interest rates and investment returns, balance of payments differences, and sentiment can also have an effect.    </p>

CC BY-SA 3.0
2016-08-06T22:01:01.173Z
2016-08-06T22:01:01.173Z
Henry
<p>Increased inflation in the domestic economy should lead to a decrease in exports (ceteris parabis) as export products have become less attractive to foreigners as they are more expensive.<br>
This leads to a decrease in demand for the domestic currency as it is used to buy the exports.  This decrease in demand for the domestic currency puts downward pressure on the exchange rate (see exchange rate diagrams for an explanation of why).  As the exchange rate depreciates this makes exports more attractive to foreign consumers, and the trade balance naturally self corrects.  However, a declining exchage rate may also lead to imported inflation.  This is where imports of raw materials used in the production of domestic products become more expensive (because of the weaker domestic currency), leading to  increased production costs of domestic products and therefore inflated prices.     </p>

CC BY-SA 4.0
2020-04-10T17:40:41.677Z
2020-04-10T17:40:41.677Z
Matthew Collis
<p>*Inflation represents the evolution of prices in a geographical area.</p>

<p>The evolution of this rate also depends on the monetary policy of the central bank and the business climate in a given area.</p>

<p>Over an area is attractive, there will be more activity and growth. Currency and goods will be sought to purchase, a price evolution is then found.</p>

<p>Result: the currency adds to the condition that the comparison zone of monetary parity (euro-dollar, euro-yuan, etc.) have poorer outcomes or different objectives. A virtuous circle settles on condition of constant improvement of the business climate and productive.</p>

<p><strong>Many parameters must be taken into account, the economic results do not permit precise expectations. Moreover, the forecasts announced by economic institutions and agencies are often revised. Economics helps provide tools to drive economic data without certainty of success.</strong> Especially since there are many economic agents ambivalent or competitive goals.</p>

<p>Inflation is the focus of monetary issues in central banks. I invite you to read the descriptions and videos offered by central banks on the importance of interest rate and monetary policies to help the economy to function.</p>

<p><strong>French/français</strong> : 
Vulgarisation économique : 
L'inflation représente l'évolution des prix dans une zone géographique. 
L'évolution de ce taux dépend de la politique monétaire de la banque centrale et du climat des affaires dans une zone donnée. </p>

<p>Plus une zone sera attractive, plus il y aura de l'activité et de la croissance. La devise et les produits seront recherchés à l'achat, une évolution des prix se constate alors. </p>

<p>Résultat : la devise se renchérit à condition que la zone de comparaison de la parité monétaire (euro-dollar, euro-yuan, etc.) ait des résultats plus faibles ou des objectifs différents. 
Un cercle vertueux s'installe à condition d'une amélioration constante du climat des affaires et de l'appareil productif.</p>

<p><strong>De nombreux paramètres sont à prendre en compte, les résultats économiques ne permettent pas des anticipations précises. D'ailleurs, les prévisions annoncées par les institutions et agences économiques sont, souvent, révisées. La science économique permet de donner des outils pour faire évoluer des données économiques sans aucune certitude de réussite.</strong> </p>

<p>D'autant plus qu'il existe de nombreux agents économiques ayant des objectifs ambivalents ou concurrentiels.</p>

<p>L'inflation est au centre des problématiques monétaires au sein des banques centrales. Je vous invite à lire les descriptions et vidéos proposées par 
les banques centrales sur l'importance du taux directeur et des politiques monétaires pour aider l'économie à fonctionner.*</p>

CC BY-SA 3.0
2016-08-06T21:16:08.557Z
Thanks for the answer, but this doesn't seem to address my main question. Should imports benefit and exports get hurt from inflation (when all other factors are held constant)? Or vice versa?
Neel
CC BY-SA 3.0
2016-08-07T09:11:21.500Z
Dear Neel, I answered you with the practical example. Best Regards.
Aymen Fassi
CC BY-SA 3.0
2016-08-06T06:57:00.040Z
2016-08-06T06:57:00.040Z
Aymen Fassi
<p><strong>A practical example</strong>:</p>

<p>One US exporter is competing with a Canadian about the sale of technological equipment to europe.</p>

<p>The Central Bank (example: Federal Reserve System) can vary the exchange rate based monetary policy.</p>

<p>At equal value technology, equivalent labor costs and the same taxes :</p>

<p>If the US dollar is more expensive compared to the Canadian dollar, the chances of selling the American decline. So the export decline.</p>

<p>If the US dollar is cheaper than the Canadian dollar, the US product that wins the export market.</p>

<p>Of course, if the US product improves the technology of the product exported, the appreciation of the importer varies depending on its needs. The importer may pay more for a more efficient product.</p>

<p>If the United States have customs privileges to the European continent, it is also an important parameter in the calculations of the importer.</p>

<p>The dollar is attractive because it can be converted into any currency. Making it attractive to make economic exchanges with this area.</p>

<p>It is a competitive element of primary importance in the world. </p>

<p>Congratulations to builders of this economic area (USA), they are the winners, for decades, about the economic game globally.</p>

<p><strong>French/Français</strong> : </p>

<p>Un exemple pratique de vulgarisation économique :</p>

<p>La Banque Centrale (exemple : la Fed) peut faire varier le taux de change en fonction de sa politique monétaire.</p>

<p>Un exportateur américain est en concurrence avec un canadien pour vendre du matériel technologique vers l'Europe.</p>

<p>A égale valeur technologique, des coûts équivalents du travail et aux mêmes taxes  : </p>

<p>Si le dollar américain est plus cher par rapport au dollar canadien,  les chances de vente de l'américain baisse. Donc l'exportation baissera.</p>

<p>Si le dollar américain est moins cher que le dollar canadien, c'est le produit américain qui remporte le marché exportateur.</p>

<p>Bien entendu, si le produit américain améliore la technologie du produit exporté, l'appréciation de l'importateur varie en fonction de ses besoins. L'importateur peut payer plus cher un produit plus performant. </p>

<p>Si les Etats-unis ont des privilèges douanières vers le continent européen, c'est aussi un paramètre important dans les calculs de l'importateur.</p>

<p>Le dollar est attractif car il peut se convertir dans toutes les monnaies. Ce qui rend attractif de réaliser des échanges économiques avec cette zone. 
C'est un élément concurrentiel de première importance à l'échelle mondiale. Bravo aux constructeurs de cet espace économique, ils sont les gagnants depuis des décennies du jeu économique à l'échelle mondiale. </p>

CC BY-SA 3.0
2016-08-07T08:57:14.987Z
2016-08-07T20:54:18.720Z
2016-08-07T20:54:18.720Z
Aymen Fassi
<p>The net effect of currency depreciation on the volume of imports and exports depends on the sum of import and export demand elasticities. See Marshall-Lerner condition.</p>
<p><a href="https://en.wikipedia.org/wiki/Marshall%E2%80%93Lerner_condition" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Marshall%E2%80%93Lerner_condition</a></p>

CC BY-SA 4.0
2023-03-25T19:08:16.157Z
Years late, but this is the correct answer. Thanks!
Neel
CC BY-SA 4.0
2023-03-24T09:52:46.670Z
2023-03-24T09:53:12.637Z
2023-03-24T09:53:12.637Z
Pavel Filip
<p>According to the aggregate demand curve, when the price level is higher, the real GDP demanded is lower. One of the explanations given is a consequence of the Mundell-Fleming model:</p>

<p>"As the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases."</p>

<p>So this seems to suggest that increased inflation means <strong>more imports and less exports.</strong></p>

<p>But increased inflation should also increase the exchange rate (currency depreciation). If you can trade foreign currency for more domestic currency, then <strong>exports should increase and (conversely) imports should decrease.</strong></p>

<p>How do I reconcile these two models? Is this a difference of short run vs. long run? Or is it a matter of all other factors being held constant in each scenario?</p>

CC BY-SA 3.0
2016-08-05T15:01:09.147Z
It is a matter of *which* other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes.
Henry
CC BY-SA 3.0
2016-08-06T21:14:58.073Z
@Henry thanks, that makes a lot of sense. Do you want to put your comment as an answer? Also, doesn't the currency exchange rate normally just match the relative rate of inflation of two currencies? Or are there other factors involved?
Neel
<macroeconomics><currency><inflation><gdp><exchange-rates>
What is the relationship between inflation and imports/exports?
Neel
# What is the relationship between inflation and imports/exports?

(Asked by: username_0 on 2016-08-04)

According to the aggregate demand curve, when the price level is higher, the real GDP demanded is lower. One of the explanations given is a consequence of the Mundell-Fleming model:

"As the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases."

So this seems to suggest that increased inflation means **more imports and less exports.**

But increased inflation should also increase the exchange rate (currency depreciation). If you can trade foreign currency for more domestic currency, then **exports should increase and (conversely) imports should decrease.**

How do I reconcile these two models? Is this a difference of short run vs. long run? Or is it a matter of all other factors being held constant in each scenario?

**Tags:** macroeconomics, currency, inflation, gdp, exchange-rates
> **Comments:**
> **username_1**: It is a matter of *which* other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes.  
> **username_0**: @Henry thanks, that makes a lot of sense. Do you want to put your comment as an answer? Also, doesn't the currency exchange rate normally just match the relative rate of inflation of two currencies? Or are there other factors involved?  

---

## 5 answers

### Answer by username_4 on 2023-03-24. Score: 2 | Accepted answer

The net effect of currency depreciation on the volume of imports and exports depends on the sum of import and export demand elasticities. See Marshall-Lerner condition.

<https://en.wikipedia.org/wiki/Marshall%E2%80%93Lerner_condition>

> **Comments:**
> **username_0**: Years late, but this is the correct answer. Thanks!  

---

### Answer by username_1 on 2016-08-06. Score: 2

As requested in comments:

It is a matter of *which* other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes.

However exchange rates do not exactly follow relative inflation in different economies; other factors such as interest rates and investment returns, balance of payments differences, and sentiment can also have an effect.


---

### Answer by username_2 on 2020-04-10. Score: 1

Increased inflation in the domestic economy should lead to a decrease in exports (ceteris parabis) as export products have become less attractive to foreigners as they are more expensive.  
This leads to a decrease in demand for the domestic currency as it is used to buy the exports. This decrease in demand for the domestic currency puts downward pressure on the exchange rate (see exchange rate diagrams for an explanation of why). As the exchange rate depreciates this makes exports more attractive to foreign consumers, and the trade balance naturally self corrects. However, a declining exchage rate may also lead to imported inflation. This is where imports of raw materials used in the production of domestic products become more expensive (because of the weaker domestic currency), leading to increased production costs of domestic products and therefore inflated prices.


---

### Answer by username_3 on 2016-08-06. Score: 1

\*Inflation represents the evolution of prices in a geographical area.

The evolution of this rate also depends on the monetary policy of the central bank and the business climate in a given area.

Over an area is attractive, there will be more activity and growth. Currency and goods will be sought to purchase, a price evolution is then found.

Result: the currency adds to the condition that the comparison zone of monetary parity (euro-dollar, euro-yuan, etc.) have poorer outcomes or different objectives. A virtuous circle settles on condition of constant improvement of the business climate and productive.

**Many parameters must be taken into account, the economic results do not permit precise expectations. Moreover, the forecasts announced by economic institutions and agencies are often revised. Economics helps provide tools to drive economic data without certainty of success.** Especially since there are many economic agents ambivalent or competitive goals.

Inflation is the focus of monetary issues in central banks. I invite you to read the descriptions and videos offered by central banks on the importance of interest rate and monetary policies to help the economy to function.

**French/français** :
Vulgarisation économique :
L'inflation représente l'évolution des prix dans une zone géographique.
L'évolution de ce taux dépend de la politique monétaire de la banque centrale et du climat des affaires dans une zone donnée.

Plus une zone sera attractive, plus il y aura de l'activité et de la croissance. La devise et les produits seront recherchés à l'achat, une évolution des prix se constate alors.

Résultat : la devise se renchérit à condition que la zone de comparaison de la parité monétaire (euro-dollar, euro-yuan, etc.) ait des résultats plus faibles ou des objectifs différents.
Un cercle vertueux s'installe à condition d'une amélioration constante du climat des affaires et de l'appareil productif.

**De nombreux paramètres sont à prendre en compte, les résultats économiques ne permettent pas des anticipations précises. D'ailleurs, les prévisions annoncées par les institutions et agences économiques sont, souvent, révisées. La science économique permet de donner des outils pour faire évoluer des données économiques sans aucune certitude de réussite.**

D'autant plus qu'il existe de nombreux agents économiques ayant des objectifs ambivalents ou concurrentiels.

L'inflation est au centre des problématiques monétaires au sein des banques centrales. Je vous invite à lire les descriptions et vidéos proposées par
les banques centrales sur l'importance du taux directeur et des politiques monétaires pour aider l'économie à fonctionner.\*

> **Comments:**
> **username_0**: Thanks for the answer, but this doesn't seem to address my main question. Should imports benefit and exports get hurt from inflation (when all other factors are held constant)? Or vice versa?  
> **username_3**: Dear Neel, I answered you with the practical example. Best Regards.  

---

### Answer by username_3 on 2016-08-07. Score: 0

**A practical example**:

One US exporter is competing with a Canadian about the sale of technological equipment to europe.

The Central Bank (example: Federal Reserve System) can vary the exchange rate based monetary policy.

At equal value technology, equivalent labor costs and the same taxes :

If the US dollar is more expensive compared to the Canadian dollar, the chances of selling the American decline. So the export decline.

If the US dollar is cheaper than the Canadian dollar, the US product that wins the export market.

Of course, if the US product improves the technology of the product exported, the appreciation of the importer varies depending on its needs. The importer may pay more for a more efficient product.

If the United States have customs privileges to the European continent, it is also an important parameter in the calculations of the importer.

The dollar is attractive because it can be converted into any currency. Making it attractive to make economic exchanges with this area.

It is a competitive element of primary importance in the world.

Congratulations to builders of this economic area (USA), they are the winners, for decades, about the economic game globally.

**French/Français** :

Un exemple pratique de vulgarisation économique :

La Banque Centrale (exemple : la Fed) peut faire varier le taux de change en fonction de sa politique monétaire.

Un exportateur américain est en concurrence avec un canadien pour vendre du matériel technologique vers l'Europe.

A égale valeur technologique, des coûts équivalents du travail et aux mêmes taxes :

Si le dollar américain est plus cher par rapport au dollar canadien, les chances de vente de l'américain baisse. Donc l'exportation baissera.

Si le dollar américain est moins cher que le dollar canadien, c'est le produit américain qui remporte le marché exportateur.

Bien entendu, si le produit américain améliore la technologie du produit exporté, l'appréciation de l'importateur varie en fonction de ses besoins. L'importateur peut payer plus cher un produit plus performant.

Si les Etats-unis ont des privilèges douanières vers le continent européen, c'est aussi un paramètre important dans les calculs de l'importateur.

Le dollar est attractif car il peut se convertir dans toutes les monnaies. Ce qui rend attractif de réaliser des échanges économiques avec cette zone.
C'est un élément concurrentiel de première importance à l'échelle mondiale. Bravo aux constructeurs de cet espace économique, ils sont les gagnants depuis des décennies du jeu économique à l'échelle mondiale.


---

