Why a dollar depreciation may not close the U.S. trade deficit

Eleanor Dillon and Linda Goldberg

Current Issues in Economics and Finance, 2007, vol. 13, issue Jun

Abstract: 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.

Keywords: International finance; Imports - Prices; Balance of trade; Dollar, American; International trade (search for similar items in EconPapers)
Date: 2007
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