The process by which the Dollar will fall: the effect of forward-looking consumers
AbstractThis paper extends the analysis of the forthcoming fall in the dollar by Blanchard, Giavazzi and Sà 2005), using a model which incorporates forward-looking consumers. It provides additional underpinnings for the idea of a rapid adjustment in the value of the dollar. We analyze what will happen to the dollar value when forward-looking consumers, in anticipation of the reduction in the current account deficit, cut their consumption. We show that the real interest rate must fall as a result, and that this causes the exchange rate to fall more initially. However we also show that the interest rate does not fall greatly initially, and so that these effects are not large. But they add to pressures causing a rapid fall in the dollar.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7325.
Date of creation: Jun 2009
Date of revision:
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Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-MON-2009-07-03 (Monetary Economics)
- NEP-OPM-2009-07-03 (Open Economy Macroeconomic)
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