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Why a Weak Dollar May Not Close the Trade Deficit
By DailyFX Updates | July 30, 2007
Interesting article written by the Federal Reserve:
“With the U.S. trade deficit at high levels, many look to a dollar depreciation to curb the U.S. appetite for foreign goods by pushing up the cost of imports. Yet three factors—the use of the dollar in invoicing U.S. trade, the market share concerns of exporters, and sizable U.S. distribution costs—could keep U.S. import prices from rising enough to reduce demand significantly. Evidence suggests that a weaker dollar will boost foreign demand for U.S. exports, but this adjustment by itself is unlikely to close the deficit.”
http://www.newyorkfed.org/research/current_issues/ci13-5.pdf
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