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Why is the dollar so high?

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  • Feldstein, Martin

Abstract

The level of the dollar is part of a complex general equilibrium system. Nevertheless, it is helpful to recognize that the high level of the dollar is necessary to generate the current account deficit equal to the difference between national saving and investment. Understanding the high level of the dollar therefore requires understanding the reasons for the low level of national saving in the United States. Reducing the large current account deficit will require both a higher rate of national saving and a more competitive dollar. Although the necessary decline in the real value of the dollar can in theory occur without a decline in the dollar's nominal value, the implied magnitude of the fall in the domestic price level is implausible. A decline of the real value of the dollar that is large enough to reduce the current account deficit significantly requires a significant decline in the nominal value of the dollar.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 29 (2007)
Issue (Month): 5 ()
Pages: 661-667

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Handle: RePEc:eee:jpolmo:v:29:y:2007:i:5:p:661-667

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Web page: http://www.elsevier.com/locate/inca/505735

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  1. Martin Feldstein, 1982. "Domestic Saving and International Capital Movements in the Long Run and the Short Run," NBER Working Papers 0947, National Bureau of Economic Research, Inc.
  2. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
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Cited by:
  1. Singh, Tarlok, 2010. "Does domestic saving cause economic growth? A time-series evidence from India," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 231-253, March.
  2. Reinhart, Carmen & Felton, Andrew, 2008. "The First Global Financial Crisis of the 21st Century," MPRA Paper 11862, University Library of Munich, Germany.

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