Gita Gopinath on Trade, Currencies, and Economic Transformation

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at Mercatus.org. For a full transcript of every conversation, enhanced with helpful links, visit conversationswithtyler.com. Hello everyone and welcome back to Conversations with Tyler. Today I'm honored to be speaking with Gita Gopinath, who is professor of economics at Harvard, formerly first deputy director at the International Monetary Fund, which is number two in that institution, formerly chief economist at the International Monetary Fund, and one of the leading figures in international trade and finance and economics more generally.

Gita, welcome. Thank you, Tyler. Thanks so much for having me on your show. Today I have only easy questions. So we're economists, right?

Relative prices matter, but it seems that trade balances are fairly weakly correlated with real exchange rates. How could you explain that? Yes, so if you look at what goes into a trade balance equation, it depends upon the relative price of your goods in international markets, but it also depends upon the relative level of demand in the two different countries for just overall consumption. So for example, if in the US consumption is strong, while in China consumption is weak, even if relative prices favor, you know, were to favor, for example, US goods, just the overall level of demand being lower in China would reduce the overall level of exports. from the US to China.

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