SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Currencies and the Global Capital Markets
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Robert Douglas who wrote (602)9/7/1998 1:24:00 PM
From: Frodo Baxter  Read Replies (2) of 3536
 
>I believe it is here your thinking takes a wrong turn. The pertinent numbers to compare wouldn't be growth rates but rather rates of inflation. I'll look up the numbers later, but I'm almost certain that during this time frame Japan ran much lower rates of inflation than did the U.S. This would mean that even if 250 was correct back in 85 that the correct exchange rate today would be less than 250 and not more.

You're not suggesting the ONLY thing that affects exchange rates is inflation are you? I recall the appropriate lesson goes something like this... all other things being equal, the exchange rate adjusts such that the real rate of return of government instruments is equal. Quite a disclaimer there, no? In reviewing some articles that analyzed the post-Plaza, post-Louvre regime, most seem to imply the the impediments to a strong dollar were: a) government deficit, and b) trade deficit, while acknowledging the above constraint. But now we know that neither deficits matter (You may disagree on the trade deficit part).

But back to the original contention. If you have an overvalued currency, you can have a loose monetary policy without causing inflation. This is what bubbles are made of. Some, most notably the Economist a few months ago, would contend that that's the situation we're in right now. So while I agree with you that Japan was inflation-free during this period, I contend that it's an effect, rather than the cause, of their strong (overvalued?) currency.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News