Tuesday, August 14, 2007

the rise and fall of the dollar

--dollar's rise from the Spring 95 through the fall of 98 was driven by a class rise in U.S/foreign real interest-rate differentials that made dollar assets more attractive to international investors. Those inflows came in faster thant the rate at which the U.S trade and current account balances were deteriorating. Overall balances of payments(net private foreign purchases minus current account) was highly dollar positive ove the 1995-1998. --from 1999 to 2000, trade balances continued to widen and REAL interest rate differential(US MINUS GERMAN) was low. What drove the dollar higher? This reassessment was sudden and dramatic, following closely on the heels of a sudden and dramatic upgrade in market expectations regarding the U.S. economy's long-run growth prospects. ---NEW ECONOMY - HIGHER LONG-TERM GROWTH PROSPECTS - productivity was raised because of new economy --the IT driven - new economy fueled the equity market and attracted oversea capital flows at a a pace far exceeding the pace at which the U.S. trade deficit was dteriorating. ---balance of payment indicators

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