The Dollar and the Macroeconomy

Brad DeLong's Morning Coffee

Category:

Education

Tags:

• economics
• dollar
• macroeconomics
• delong
• morning_coffee

[81Natasa]

that`s excatly what happend..the first hand :)

[DClaudeKatz]

Is it still clear that the dollar must decline vs. the euro (& other freely floating currencies)? Given the lag in trade responses, isn't it possible that the US is now close to equilibrium vs. Europe? China is another story because the exchange rate is more or less fixed; likewise most oil exporters; & Japan, yet another story, because Japan may need the external stimulus to avoid falling back into deflation. Is there really still any obvious unexploited play on a dollar that has to fall?

[DClaudeKatz]

Anyhow, as to the substance, is it really possible to have "a world in which everybody expects a falling US dollar" if foreign exchange markets clear and short-term interest rates are set by central banks? You could have a situation where the Fed tightens (thus widening rate differentials) to offset the stimulus from a dollar that is falling too fast. But that wouldn't necessarily cause a recession: the whole point is to avoid a boom. Would those higher interest rates really be a bad thing?

[DClaudeKatz]

Open-economy macroeconomics is too difficult a topic to talk about so quickly. Even a macroeconomist like me has trouble following. (I keep having to move the slider back and repeat sections of the video.) Possibly people who are younger and haven't just had lunch will have an easier time taking in information quickly, but most won't have the advantage of already knowing the subject.