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Why is the Dollar So High?


  • Feldstein, Martin


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.

Suggested Citation

  • Feldstein, Martin, 2007. "Why is the Dollar So High?," Scholarly Articles 2794833, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:2794833

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    References listed on IDEAS

    1. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
    2. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2004. "Social Interaction and Stock-Market Participation," Journal of Finance, American Finance Association, vol. 59(1), pages 137-163, February.
    3. Edward L. Glaeser, 2002. "The Political Economy of Hatred," Harvard Institute of Economic Research Working Papers 1970, Harvard - Institute of Economic Research.
    4. Edward L. Glaeser, 2002. "The Political Economy of Hatred," NBER Working Papers 9171, National Bureau of Economic Research, Inc.
    5. Sendhil Mullainathan & Andrei Shleifer, 2005. "The Market for News," American Economic Review, American Economic Association, vol. 95(4), pages 1031-1053, September.
    6. repec:cup:apsrev:v:96:y:2002:i:01:p:57-73_00 is not listed on IDEAS
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    Cited by:

    1. Felton, Andrew & Reinhart, Carmen M. (ed.), 2009. "The First Global Financial Crisis of the 21st Century Part II: June–December, 2008," Vox eBooks, Centre for Economic Policy Research, number p199.
    2. 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.

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