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Exchange rates and trade balances under the dollar standard

Authors
Journal
Journal of Policy Modeling
0161-8938
Publisher
Elsevier
Publication Date
Volume
29
Issue
5
Identifiers
DOI: 10.1016/j.jpolmod.2007.06.011
Keywords
  • Exchange Rate Policy
  • Trade Balance
  • East Asia
  • Dollar Standard

Abstract

Abstract This paper considers the impacts of discrete exchange rate changes in open economies with net foreign exchange liabilities and assets under the dollar standard. The author finds that the combination of wealth, price, investment, and indirect investment effects (when present) increases the complexity of predicting current account movements following exchange rate changes, which in many cases lead to ambiguous results. Because exchange rate changes can no longer be separated from domestic price-level and absorption effects, except in special cases, they cannot be used predictably, to adjust the trade balance.

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