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Macroeconomic policies, competitiveness, and U.S. external adjustment

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  • Peter Hooper
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    Abstract

    This paper presents an empirical analysis of the relationships among the U.S. external balance, exchange rates, macroeconomic policies, and longer-term trends in relative labor productivity. Movements in the U.S. external balance over the past two decades have been determined to a substantial degree by shifts in U.S. international price and cost competitiveness. Movements in price and cost competitiveness, in turn, have been dominated by swings in nominal exchange rates, which can be explained to a large extent by shifts in fiscal and monetary policies at home and abroad. A longer-term downward trend in the dollar may have been associated with secular decline in U.S. relative to foreign productivity in manufacturing. The downtrend in relative productivity has leveled off in recent years, however. The likelihood of a resumption of the downtrend in relative productivity may be reduced, at current level of exchange rates, by a shift in manufacturing investment towards.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/347/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/347/ifdp347.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 347.

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    Date of creation: 1989
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    Handle: RePEc:fip:fedgif:347

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    Related research

    Keywords: Macroeconomics ; Balance of payments ; Foreign exchange rates;

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    1. William H. Branson & Arminio Fraga & Robert A. Johnson, 1985. "Expected Fiscal Policy and the Recession of 1982," NBER Working Papers 1784, National Bureau of Economic Research, Inc.
    2. Martin Feldstein, 1989. "The Budget Deficit and the Dollar," NBER Working Papers 1898, National Bureau of Economic Research, Inc.
    3. Paul Krugman, 1988. "Adjustment in the World Economy," NBER Working Papers 2424, National Bureau of Economic Research, Inc.
    4. William H. Branson & Arminio Fraga & Robert A. Johnson, 1985. "Expected fiscal policy and the recession of 1982," International Finance Discussion Papers 272, Board of Governors of the Federal Reserve System (U.S.).
    5. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
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