Dollar Depreciation

Paper Summary:

This paper examines how dollar depreciation is thought by many to be a good method of increasing output, investment, and employment, while at the same time helping to reduce the current account deficit. It analyzes the effects of a weak dollar on output in merchandising industries as well as in the aggregate, investment, employment, inflation, and the balance of payments. Theoretical models, as well as empirical data, are used to come to the conclusion that depreciating the dollar is harmful to the U.S. economy.

From the Paper:

"One argument is that dollar depreciation relative to other currencies will increase output and profits for firms that export goods. The simplest form of this argument states that a weaker dollar will make American exports comparatively cheaper and therefore, foreign consumers will demand more U.S. exports. This increased demand for exports will increase output for American firms. For example, say the dollar depreciates relative to the euro. Where consumers could once buy $1.10 for one euro they can now buy $1.20. "

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