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| Wednesday, April 27, 2005 |
| Amherst grad warns on the dollar in the NYT |
It's not every day that an Amherst classmate (2001) has an op/ed in the NYTimes. Congratulations Katharina.
She and her boss at the Institute for International Economics discuss one reason the dollar depreciation has not led to a closing of the trade deficit, as expected: the pass-through rate, or "the extent to which changes in the exchange rate induce changes in a country's import and export prices". Basically, import/export prices in the U.S. are sticky because of the size and competitiveness of the U.S. market; exporters accept temporarily lower profits.
As they argue in the article, this creates a market imbalance that prevents the trade gap from closing, meaning the U.S. goes further and further in debt to foreign investors. Barring some proactive fix, the dollar has to fall a lot farther to start to move the needle. Not good. |
posted by CB @ 4:02 PM   |
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