Working Paper: NBER ID: w2838
Authors: Martin Feldstein
Abstract: Better domestic economic policies in the 15 years since the collapse of the Bretton Woods system would have prevented the extreme fluctuations of the dollar's exchange value during those years. The pursuit of policies here and abroad that are appropriate for domestic growth in the future should reduce the likelihood of such substantial exchange rate swings in the years ahead. But elevating exchange rate stability to a separate goal of economic policy could have serious adverse consequences. Trying to achieve that goal would mean diverting monetary and fiscal policies from their customary roles and thereby, risking excessive inflation and unemployment and inadequate capital formation. Succeeding in the efforts to achieve dollar stability would mean harmful distortions in the balance of trade and in the international flow of capital.
Keywords: Dollar Stability; Economic Policy; Exchange Rates
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inappropriate monetary and fiscal policies (E62) | Extreme fluctuations in the dollar's exchange value (F31) |
| Attempting to stabilize the dollar (F31) | Diverting monetary and fiscal policies from their traditional roles (E63) |
| Diverting monetary and fiscal policies from their traditional roles (E63) | Excessive inflation, unemployment, and inadequate capital formation (E31) |
| Policy manipulations (D73) | Distorting the balance of trade and disrupting international capital flows (F32) |