Journal Article

The trade balance and the real exchange rate

Abstract: John K. Hill examines how the trade balance and the real exchange rate interact after an economic disturbance. Hill explains how, for disturbances likely to have a significant effect on the trade balance, real exchange rate movements are more the result of a shift in the trade balance than the cause of it. The impetus for change in the trade balance is the disturbance itself. Exchange rate movements are accommodative and, by themselves, account for only part of the total change in the trade balance. Hill concludes that to ask \"How far must the dollar fall to balance the trade account?\" is to seriously overestimate the extent of needed dollar depreciation.

Keywords: Balance of trade; Foreign exchange rates;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Economic and Financial Policy Review

Publication Date: 1990

Issue: Nov

Pages: 1-15