The Desirability of a Dollar Appreciation, Given a Contractionary U.S. Monetary Policy
AbstractUndesirable real effects have been attributed to floating exchange rates in general, and the 1980-83 appreciation of the dollar in particular.In the appreciating country, the U.S., export industries lose competitiveness and so output falls. In the other country, say Europe, the exchange rate change worsens inflation.This paper starts from the premise that these undesirable side effects are attributable, not to the exchange rate, but rather to the decisionin the U.S. to switch to a more contractionary monetary policy in order to fight inflation. Given the U.S. contraction, it might be desirable for the dollar to appreciate in the sense that it allows each country to attain the best possible tradeoff between aggregate output and inflation.This conclusion follows from the assumption that in each of two sectors,nontraded goods or exportables, the relationship between output and inflationis concave. A U.S. contraction will then give the maximum reduction ininflation per lost output only if it is shared equally by both sectors.This means allowing the currency to appreciate; under a fixed exchange rate the burden of contraction would be borne disproportionately by the nontraded goods sector. The exchange rate change is also good for Europe. Given the U.S. contraction, the European export sectors would suffer a disproportionate loss in output if European currencies were not allowed to depreciate against the dollar.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1110.
Date of creation: Apr 1983
Date of revision:
Publication status: published as "Desirability of a Currency Appreciation, Given a Contractionary Moneyart Policy and Concave Supply Relationships." From Journal of International Economic Integration, Vol. 3, pp. 32-52, (Spring 1988).
Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Gordon, 1975.
"Recent Developments in the Theory of Inflation and Unemployment,"
199, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gordon, Robert J., 1976. "Recent developments in the theory of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 185-219, April.
- Buiter, Willem H. & Miller, Marcus, 1982.
"Real exchange rate overshooting and the output cost of bringing down inflation,"
European Economic Review,
Elsevier, vol. 18(1), pages 85-123.
- Buiter, Willem H. & Miller, Marcus, 1982. "Real exchange rate overshooting and the output cost of bringing down inflation," European Economic Review, Elsevier, vol. 18(2), pages 85-123.
- Willem H. Buiter & Marcus Miller, 1991. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 239-277 National Bureau of Economic Research, Inc.
- Willem H. Buiter & Marcus H. Miller, 1982. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," NBER Working Papers 0749, National Bureau of Economic Research, Inc.
- Buiter, Willem H & Miller, Marcus, 1981. "Real Exchange Rate Overshooting and the Output Cost of Bringing Down Inflation," The Warwick Economics Research Paper Series (TWERPS) 204, University of Warwick, Department of Economics.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
- Fleming, J Marcus, 1971. "On Exchange Rate Unification," Economic Journal, Royal Economic Society, vol. 81(323), pages 467-88, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.