Article;
Rudi Dornbusch and the salvation of international macroeconomics.
Comment;
In the foreign exchange market an increase in income of the
consumer through depreciation must be weighted against the fall in the
purchasing power of the currency, in a sense, debasing which means a country
can not endlessly depreciate. Changes in the value of a currency do not affect
prices they affect income of the consumer through depreciation so there is no
question of prices. Nevertheless, in the next period we can expect prices to
rise due to increase in demand. However, we are overshooting the value of
currency and not the prices so in the short-run it is sticky. We have sign of
persistent deflation or at least a pressure in many parts of the WORLD like Japan, US, and even in Germany which
went through internal devaluation which means a downward pressure on prices and
wages. Therefore certainly there is a question regarding the right policy…
internal devaluation like Germany
or internal revaluation like the US… Therefore apart from foreign
exchange market we do not have evidences for price-stickiness. I would support Germany because
of my belief that the value of a currency should rise domestically also and not
only in terms of another currency. Prices should fall in the long-run and not
rise as normally happens. The value of a currency or a dollar or pound should
rise domestically if we claim to develop in the long run. The value of currency
should also develop…
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