Title: Commentary on 'The Dollar in the 1990s: Competitiveness and the Challenges of New Economic Blocs'
Abstract: At risk of oversimplifying and of losing both subtlety of argument and many insights contained in its development, Rudiger Dornbusch's message can be summarized in three major points. First, persistent current account imbalances are evidence of lack of a (satisfactory) adjustment mechanism in today's world economy. To correct such imbalances from a U.S. perspective requires a massive improvement in U.S. trade balance and, for that purpose, given foreseeable productivity trends, a large real depreciation of dollar will have to take place in 1990s. The real depreciation will have to be larger if, as should occur, a correction of U.S. budget deficit takes place. As for monetary policy, it should be eased to maintain full employment aid stable growth. In addition, an aggressive commercial policy that pries open foreign markets, especially closed Japanese one, should be pursued and, if successful, would help correct U.S. external deficit significantly. Second, domestic financial market deregulation will increase international capital mobility or, more precisely, portion of changes in national savings rates that result in changes in current account rather than in changes in investment. Thus, budget cutting in United States would result in a significant, though far from one-toone, improvement in U.S. current account, counterpart to which will, again, have to be dollar depreciation in real terms. Third, this will not be enough to make what Dornbusch calls the Japan problem
Publication Year: 1990
Publication Date: 1990-01-01
Language: en
Type: article
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Cited By Count: 1
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