Abstract
Many US policymakers on both sides of the aisle, including President Trump, have called on the US Federal Reserve to cut interest rates to depreciate the US dollar. This paper uses an intertemporal general equilibrium model to explore what would likely happen if this policy was pursued. It shows that the general equilibrium effects of a depreciated real effective exchange rate brought about by lower US interest rates can result in a wide variety of unintended consequences. The paper explores what would happen if US trading partners were to retaliate by devaluing their currencies.
Original language | English |
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Pages (from-to) | 1484–1508 |
Journal | The World Economy |
Volume | 44 |
DOIs | |
Publication status | Published - 2021 |