Bergsten e Williamson - Dollar Adjustment How Far

Bergsten e Williamson - Dollar Adjustment How Far - Dollar...

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Unformatted text preview: Dollar Adjustment: How Far? Against What? C. Fred Bergsten and John Williamson, editors Coming in November 2004 Dollar Adjustment: How Far? Against What? C. Fred Bergsten and John Williamson, editors ISBN paper 0-88132-378-0. $26.95 Available from the Institute for International Economics; call 1-800-522-9139 to order. Contents Overview: Designing a Dollar Policy 1 Developments since 2002 1 How Large a Dollar Decline? 5 Which Currencies Should Appreciate Against the Dollar? 9 The Instruments of Adjustment 18 Conclusions 21 References 24 About the Authors 25 1 The primary goal of the Institute’s conference on dollar adjustment, held in Washington on May 25, 2004, was to assess the progress that has been made in correcting the sizable misalignments of key national currencies that had developed in the late 1990s and early 2000s. It also sought to aid understanding of the needed adjustment process and contribute to its promotion. To further these objectives, the conference drew on a number of recent analyses from around the world. Developments since 2002 This conference was a sequel to an earlier conference held at the Institute on September 24, 2002, which tried to estimate the magnitude and explore the implications of the dollar overvaluation that had developed in the preceding years (see Bergsten and Williamson 2003). At that time, the dollar had declined by a trade-weighted average of about 5 percent from its peak in early 2002, after rising by an average of 35 to 50 percent from its lows in 1995 (table 1.1). One result of that prolonged dollar appreciation (together with faster growth in the United States than in its main trading partners) was a sharp rise of the US current account deFcit to about $550 billion, or 5 percent of GDP. Indeed, the deFcit hit a record level in April 2004, as was announced just before the update conference. Catherine L. Mann (2004) is now projecting a renewed and progressive increase in the deFcit in the absence of further major changes in relative growth rates and exchange rates or both. Overview: Designing a Dollar Policy C. FRED BERGSTEN and JOHN WILLIAMSON 2 DOLLAR ADJUSTMENT: HOW FAR? AGAINST WHAT? The earlier conference addressed four central issues. First, there was unanimous agreement among the participants that further depreciation of the dollar was needed to achieve a sustainable relationship among national currencies and current account positions. The participants also observed that there were two important advantages in achieving this realignment promptly. One was the presence of considerable slack in the US economy, which meant that the dollar could decline without much (if any) adverse impact on US inflation and interest rates. The second was the superiority of US economic performance relative to other industrial countries, which reduced the risk of capital flight from the United States and thus of a dis- Table 1.1 Movements in the dollar exchange rate, 1995–2004 Movement Federal Reserve broad nominal...
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Bergsten e Williamson - Dollar Adjustment How Far - Dollar...

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