IDEAS home Printed from
   My bibliography  Save this article

The U.S. Budget Deficit and the Foreign Exchange Value of the Dollar


  • Melvin, Michael
  • Schlagenhauf, Don
  • Talu, Ayhan


This paper presents and estimates a simple model of real exchange rate determination that includes the expected future U.S. federal budget deficit as a determinant. The model is applied to the real value of the dollar versus the mark, yen, and pound over the period June 1974-October 1987. The estimates suggest that rapid increases in the expected future deficit in the early 1980s contributed to a rapid appreciation of the dollar. The fall in the value of the dollar in the spring of 1985 appears to be due to a fall in the expected budget deficit. Copyright 1989 by MIT Press.

Suggested Citation

  • Melvin, Michael & Schlagenhauf, Don & Talu, Ayhan, 1989. "The U.S. Budget Deficit and the Foreign Exchange Value of the Dollar," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 500-505, August.
  • Handle: RePEc:tpr:restat:v:71:y:1989:i:3:p:500-505

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Reece, William S & Zieschang, Kimberly D, 1985. "Consistent Estimation of the Impact of Tax Deductibility on the Level of Charitable Contributions," Econometrica, Econometric Society, vol. 53(2), pages 271-293, March.
    2. Poterba, James M, 1987. "Tax Evasion and Capital Gains Taxation," American Economic Review, American Economic Association, vol. 77(2), pages 234-239, May.
    3. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
    4. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    5. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-373, August.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:71:y:1989:i:3:p:500-505. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.