The Declining Exchange Rate: Impact On The U.S. Economy 2000-2009
Using a simplified Klein/Fair structural model of the U.S. economy, estimated using 1960 – 2000 data, the paper finds that the 12.9% dollar decline 2000-2009 had a positive effect on exports, but mildly negative effects for domestically produced investment and consumer goods. It is shown that the negative effects occurred because the negative income effects of rising import prices offset the more positive effects of substitution toward domestic goods. The estimated overall negative effect on the GDP is modest: 1.7% over the nine years, or about a fifth of a percent per year. It is estimated this decline in the dollar reduced the trade deficit $140.7 billion. This decline is estimated to have increased U.S. net asset position by an $88.6 billion. This paper updates R.P.I. Economics Department Working Paper #905 to include effects of exchange rate changes during 2009.
|Date of creation:||Oct 2010|
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