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Tag Archives: Exchange Rates

Review of Subacchi, “The People’s Money: How China Is Building a Global Currency”

For those interested in the RMB, here’s my book review: This illuminating volume by economist Paola Subacchi provides an excellent overview of the past and future prospects of the Renminbi—the People’s money. Since the book was published, much has happened—including a massive shock to the global financial system and changes in the leadership in the United States as well as of multilateral institutions. However, the essential challenges high-lighted in the book continue to thwart China’s...

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Everything Is Relative

From CNN Business, Dollar doldrums are back as inflation worries heat up: The US Dollar Index, which measures the greenback versus the euro, yen and several other major global currencies, has fallen about 2.5% in the past three months -— and it’s now down more than 7% in 2021. Fears of rising inflation are taking a bite out of the dollar, as are expectations that the Federal Reserve will keep interest rates near zero for the foreseeable future despite inflation concerns. Both inflation and...

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Steel Tariffs and Iron/Steel Prices

The Section 232 tariffs on steel and aluminum were a bad idea during the Trump administration. They’re still a bad idea. There are indications that the Biden administration will keep these tariffs in place, at least in the short term. Given the accelerated rise in prices since end-2020, this reluctance to eliminate these counterproductive measures is mysterious to me. The depreciation of the dollar after the Trump-induced flight to dollar assets had already raised import prices. Figure 1:...

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Guest Contribution: “What Three Economists Taught Us About Currency Arrangements”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy  School of Government, and formerly a member of the White House Council of Economic Advisers. A appeared at Project Syndicate. A generation of great international economists is passing from the scene.  Richard Cooper died on December 23. An American, he was teaching his classes at Harvard until the very end. Robert Mundell, passed away on April 4.  Originally Canadian; he was a...

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What Three Economists Taught Us About Currency Arrangements

TweetApril 24, 2021 — A generation of great international economists is passing from the scene.  Richard Cooper died on December 23. An American, he was teaching his classes at Harvard until the very end. Robert Mundell, passed away on April 4.  Originally Canadian, he was a winner of the Nobel Prize in economics.  And John Williamson, on April 11. Originally British, he had been the first scholar hired by the Peterson Institute for International Economics. As a personal note, I was...

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Macroeconomic Competitiveness

Competitiveness is often appealed to in popular discourse, but seldom defined. In macroeconomics, competitiveness is usually interpreted as cost competitiveness. Chinn and Johnston (JPAM, 1994) discuss the topic at length. Here is the OECD’s measure of cost competitiveness since 1999, along with the Fed’s CPI deflated measure of the dollar against a broad basket of currencies. Figure 1: Unit labor cost (ULC) in manufacturing deflated value of US dollar (blue), estimated ULC deflated series...

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The Dollar Depreciates – And That’s a Good Thing

Interesting to note that the dollar has declined in tandem with economic policy uncertainty, as measured by the Baker, Bloom & Davis index (and predicted by historical correlations). Source: FRED. Not all else is held constant. Expected inflation has risen since the election — about 0.8 ppts on the 5 year breakeven — and the real ten year interest rate has fallen: about 15 bps. That means the decline in the dollar’s value is over-explained. Real rates have fallen somewhat, despite...

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Treasury Secretary Designate Yellen on the Dollar

From Reuters today: “The value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy”, Yellen will say, if asked about the incoming administration’s dollar policy, according to the report. Just because the US takes no action to depreciate the dollar doesn’t mean it won’t move. Market forces includes expectations of future policy, and perceived risk and...

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“Is a Dollar Crash Coming?”

That’s the title of a symposium in The International Economy, with Anders Åslund, Scott K.H. Bessent, Lorenzo Bini Smaghi, Jill Carlson, Stephen G. Cecchetti, Menzie D. Chinn, Lorenzo Codogno, Tim Congdon, Marek Dabrowski, Mohamed A. El-Erian, Heiner Flassbeck, Takeshi Fujimaki, Joseph E. Gagnon, James K. Galbraith, James E. Glassman, Michael Hüther, Richard Jerram, Gary N. Kleiman, Anne O. Krueger, Mickey D. Levy, Thomas Mayer, Jim O’Neill, Adam S. Posen, Holger Schmieding, Derek Scissors,...

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The Strong Dollar Debate, Yet Again

(Somewhat repetitive of a 2007 post…) Steven Englander of Standard Charter writes several weeks ago (not online): “From the Treasury’s perspective, the purpose of a strong dollar policy is less a strong dollar itself than to encourage foreigners to lend to the US on favourable terms even when the dollar is under pressure. The success of a strong dollar policy is reflected in the absence of USD risk premium on US assets when the USD is weak. In fact, the preferred asset market outcome is...

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