Paul Krugman

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• 
  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?

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