Title: Paul Krugman
1-
Paul Krugman -
10/20/05 - A dollar crisis?
- Two distinct issues
- Is the dollar on a sustainable trajectory, or
- will there be a sudden fall?
- 2. If there is a sudden fall, will it have
unpleasant - macro effects?
2Sustainability algebra
Debt accumulation (adjusted current account)
Balance on goods and services
Implicit forecast of real exchange rate?
3Stylized numbers R 0.04 a 0.17
(Obstfeld-Rogoff) r-r?
4Weak sustainability
Goods and services improvement
Rising debt service
5(No Transcript)
6Criterion
(.04 - .03)(.06)/.17 0.0035
So very mild depreciation is enough but
7Debt-GDP ratios
1 dep.
2 dep.
3 dep.
8Global savings glut (Bernanke) should be
reflected in r-r Exorbitant privilege
(Gourinchas and Rey) reflected in R Bretton
Woods II (Dooley and Garber) May mean that r-r
isnt an implicit forecast On the other
side Houthakker-Magee (secular depreciation of
real dollar?)
9What if the does plunge? Crude model
Savings-investment
Rate of return arbitrage
10q
G
1
?
2
?
G
s
A problem with relative speeds of adjustment?
11What monetary policy can do
implying