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Paul Krugman

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Implicit forecast of real exchange rate? Sustainability algebra. Stylized numbers: R = 0.04 ... euro. 1.5? ~3. 4.46. US. Real rate? Inflation. LT interest. Weak ... – PowerPoint PPT presentation

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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?

2
Sustainability algebra
Debt accumulation (adjusted current account)
Balance on goods and services
Implicit forecast of real exchange rate?
3
Stylized numbers R 0.04 a 0.17
(Obstfeld-Rogoff) r-r?
4
Weak sustainability
Goods and services improvement
Rising debt service
5
(No Transcript)
6
Criterion
(.04 - .03)(.06)/.17 0.0035
So very mild depreciation is enough but
7
Debt-GDP ratios
1 dep.
2 dep.
3 dep.
8
Global 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?)
9
What if the does plunge? Crude model
Savings-investment
Rate of return arbitrage
10
q
G
1
?
2
?
G
s
A problem with relative speeds of adjustment?
11
What monetary policy can do
implying
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