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Nepalese currency has been devaluating but BOT is getting more and more worse. There is no sign of J curve anytime soon. The reason I believe is Nepal's over dependence on India for import and Nepal's currency being pegged with Indian currency. Does it mean that Nepal needs to rethink its pegged currency? But with unstable political environment and not so good investment environment, the country might fall into deeper trouble with floating exchange rate with India. Please comment.
Given that the investment environment remains unstable, and given that Nepal continues to have an unsteady inflation rate, yes, floating exchange rates may bring further uncertainty for investors if this is not a part of a larger package of policies. And since Nepal has to import a lot anyway, de-pegging the Nepalese rupee from the Indian rupee would not help too much in improving the balance of trade. There is no easy escape. To improve the BOT Nepal has to produce attractive goods and services, and for that, it needs a stable investment environment and a more steady and predictable inflation rate. Note also that simple political stability is not enough to have a business friendly environment. We need a particular kind of stable political environment, one that allows for market institutions.
There seems to be some issue with the editing of this video -- some unintended repetition and some narration is cut-off mid-sentence. This starts with the J-curve (3:08) and goes on on until the end of the video. Video seems to be missing (white screen) at times, too.
Am I the only one seeing this?
Maybe this will be answered later but what about the impact of the policy tool for bringing about depreciation? That is, to depreciate its currency, doesn't a country need to buy the foreign currency? And won't that typically be via newly created money, and an expansion in the money supply? And won't that lead to inflation, negating some or all of the effect of the depreciation? Is it possible in theory and practice to keep a currency below its "natural" rate fro prolonged periods, given the offsetting impact of money supply growth and inflation?
Can we safely say that the contractionary and expansionary depends on elasticity of import and export WRT exchange rate? For devaluating currency, If sum of elasticity of export WRT exchange rate + absolute value of elasticity of import WRT to exchange rate is > 1 then the economy is expansionary and if less than 1 it is contractionary.