0.5 percentage point: The potential boost in annual U.S. economic growth from the dollar’s decline since August 27.
As finance ministers from the Group of 20 developed and developing nations meet in Seoul in an effort to avert a currency war, it’s helpful to recognize the temptation they face. A little move in an exchange rate can have a big impact on a country’s growth.
Consider the recent fall in the dollar. Since August 27, when Federal Reserve Chairman Ben Bernanke signaled the central bank was likely to pump more dollars into the economy, the greenback’s value has fallen about 4.8% against the currencies of U.S. trading partners (data through October 15). Given the historical behavior of U.S. exports and imports, a sustained move of that magnitude should shrink the U.S. trade deficit by nearly $140 billion over the next two years. That’s the equivalent of an added 0.5 percentage point of economic growth in each year.
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