Article ID Journal Published Year Pages File Type
968179 Journal of Policy Modeling 2007 7 Pages PDF
Abstract

This article explains why the dollar is above its long run equilibrium level and why it will decline. The fundamental reason for the strong dollar is that the US saving rate is very low. The gap between saving and the investment in businesses and housing must be filled by an inflow of capital from abroad. That inflow is equal to the difference between what we spend on imports and what we earn from exports. Achieving this trade deficit requires a high value of the dollar. Reducing the trade deficit requires both a higher saving rate and a lower real value of the dollar.

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Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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