In mid-2008, the real effective exchange rate (REER) of the dollar was close to its minimum level for the past four decades. At the same time, however, the US trade and current account deficits remain large and, absent a significant correction in coming years, would contribute to a further accumulation of US external liabilities. The paper discusses the tension between these two aspects of the dollar assessment, and what factors can help to reconcile them. It focuses in particular on the terms of trade, adjustment lags and measurement issues related to both the REER and the current account balance. Copyright 2008 The Author Journal compilation 2008 Banca Monte dei Paschi di Siena SpA.
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Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.
Volume (Year): 37 (2008) Issue (Month): 3 (November) Pages: 259-281 Download reference. The following formats are available: HTML
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