Dollar Devaluation Research Articles

Gold in the international reserves of countries

Subject. The article addresses the enhanced position of gold as the main international reserve asset of countries. Objectives. The purpose is to prove the increasing role of gold as the main financial asset in the international reserves of countries throughout periods of economic volatility. Methods. The study rests on economic analysis, statistical, economic, and systems approach. Results. Annual changes in the structure of international reserves of the Russian Federation show a decrease in reserve assets denominated in foreign currency. The reserve position in the IMF makes up about 1% of the country's total assets, and SDR-denominated reserve accounts – from 1 to 2 percent. The share of monetary gold has increased; the overall increase in Russian gold reserves amounts to over 14%, in USD. Conclusions and Relevance. Currently, the reserves of six largest leading countries in terms of gold reserves amount to over 20 thousand tonnes of the precious metal. However, the presence of large gold reserves does not always allow the gold to occupy a leading position in the structure of international reserves of countries. This is evidenced by statistics from China, Switzerland and other countries. The U.S. reserves contain the largest amount of physical gold, its value at the official price that was established after the dollar devaluation in 1973 is as follows: one Troy ounce of the precious metal (31.1 grams) is equivalent to 42.2 USD.

Contractionary Devaluation Risk: Evidence from the Free Silver Movement, 1878–1900

I identify significant effects of devaluation risk on interest rates and output using US silver coinage policy news between 1878 and 1900 as clean shocks to exchange rate expectations. The Free Silver movement heightened fears the United States would abandon the gold standard and depreciate the dollar. Because Congress, rather than a central bank, set silver coinage policy, silver policy news was likely uncorrelated with economic shocks. Corporate bonds exposed to dollar devaluation returned an additional 1 percent relative to safer bonds when silver risk decreased. Additionally, increased silver coinage risk is associated with an economically significant fall in industrial production.

Recovery from the Great Depression: The Farm Channel in Spring 1933

From March to July 1933, US industrial production rose 57 percent. We show that an important source of recovery was the effect of dollar devaluation on farm prices, incomes, and consumption. Devaluation immediately raised traded crop prices, and auto sales grew more rapidly in states and counties most exposed to these price increases. The response was amplified in counties with more severe farm debt burdens. For plausible assumptions about farmers’ relative MPC, the incidence of higher farm prices, and the aggregate multiplier, this redistribution to farmers accounted for a substantial portion of spring 1933 growth. This farm channel thus provides an example of how the distributional consequences of macroeconomic policies can have large aggregate effects. That recovery in 1933 benefited from redistribution to farmers suggests an important limitation to the use of 1933 as a guide to the effects of monetary regime changes in other circumstances. (JEL E32, E65, N12, N52, Q11, Q12)

It Takes a Regime Shift: Recent Developments in Japanese Monetary Policy through the Lens of the Great Depression

Last week, we witnessed one of the most exciting developments in monetary policymaking since the 1930s. The Japanese central bank staged an honest-to-goodness regime shift. The Bank of Japan went beyond vague promises and cheap talk. As I will describe in more detail later, it took dramatic actions and pledged convincingly to do whatever it takes to end deflation in Japan. The theoretical reasons why this regime shift may be important are well understood by economists. Persistent deflation and anemic growth suggest that Japan continues to suffer from a shortfall of demand. But their policy interest rate is already at the zero lower bound. Furthermore, riskier, long-term rates are also very low— suggesting that unconventional policies such as large-scale asset purchases are unlikely to do much to further reduce nominal rates. As discussed by Paul Krugman, Gauti Eggertsson and Michael Woodford, and others, if unconventional monetary policy can raise expected inflation, this can push down real interest rates even though nominal rates cannot fall. 1 This, in turn, can raise aggregate demand by stimulating interest

Comment on “A Pass-Through Revival”

Exchange rate adjustments … weren't always reflected in the final prices of exports and imports. Following the last upward valuation of the Japanese yen, many Japanese exporters simply absorbed the increase, reducing their profit margins instead of raising prices. And many American international companies took the last dollar devaluation as an opportunity to increase the profit margins of their overseas affiliates instead of cutting prices. In the exchange rate pass-through literature, the seminal theoretical paper by Dornbusch (1987) emphasizes the price setting role of exporters in imperfectly competition markets to explain the less than proportionate response of export prices to exchange rate fluctuations. After Dornbusch (1987), a large number of theoretical and empirical studies have focused on the price-setting behaviors of exporters. Surely the important policy implications of exchange rate pass-through are originally on import side, but as discussed above, the developments in this research area have been inclined more toward exporters' pricing behaviors. Now given the current situation in Japan that after the decades-long period of small-inflation (or deflation), the change in monetary policy of Japan calls for inflation of 2% within two years, our attention should be focused more on the price transmission from import prices to final consumer prices. In this sense, I totally agree with Shioji's (2014) emphasis that discussions of the “pass-through on import side” need to be revived. Now, it remains to evaluate quantitatively how important this channel is for inflation in Japan. Shioji's paper investigates the price transmission mechanism by examining prices at different stages: the import price; prices at intermediate stages; and the consumer price. Price series are included in a standard vector autoregressive model (VAR) and a more sophisticated VAR with time-varying coefficients and stochastic volatilities. The impulse responses of the standard VAR model in Shioji's (2014) Figure 2 and Table 2 indicate an upward shift in recent years. In addition, taking advantage of the time-varying coefficients VAR, the impulse response in different periods are tested to see whether the degree of pass-through transmission has changed over time. Shioji finds evidence for an increase in the degree of pass-through in the latest period (see Shioji's, (2014) Figure 3 and Table 3), and concludes that exchange rate pass-through to import prices has risen. Shioji further relates the cause of pass-through changes to the change in the proportion of imported inputs (in terms of value) using input-output analysis. How relevant is this pass-through issue to current Japan's monetary policy? Shioji answers this question by giving a rough forecast of the impact of the 25% depreciation of the Japanese yen on inflation to be 1% in 6 months. Thus, I agree that “pass-through revival” is normatively important in Japan's current economic situation, that is, an economy that has suffered deflation for a long period and has a zero-lower-bound interest rate, as well as being quantitatively important for the inflation target of two percent in 2 years. Having said that and with all due respect to Shioji's paper, I shall raise one issue that I am not completely in agreement with Shioji. In the introduction of his paper, Shioji (2014, p. 121) argues that “this apparent revival of pass-through likely means that the central bank has regained an important transmission mechanism of its policy to the private sector.” If the Bank of Japan (BoJ) is able to maneuver a depreciation of the Japanese yen, the BoJ may successfully lead the consumer price index (CPI) to its targeted goal of 2% inflation. However, the BoJ cannot rely on direct intervention in the foreign exchange market. The failure or short-lived effects of central bank intervention in foreign exchange markets are well documented, especially in the 2003 and 2004 episodes, and the more recent BoJ interventions after 2010. How and why the Japanese yen depreciated by 25% (without interventions in the foreign exchange markets) between October 2012 and May 2013 needs to be examined more carefully, and further study is warranted. Clarifying quantitatively the underlying mechanism which did not work in the last two decades and that worked in 2012–2013 would strengthen the credibility of the policy tools available to the BoJ as Shioji claims.

The Evaluation of the USD Currency and the Oil Prices: A Var Analysis

Dollar devaluation creates a huge problem in the world oil industry, leading to a vast decrease in the revenues of the oil producers, though the local oil producers use the local currencies to operate and the oil price is evaluated in dollars. The depreciation of the US dollar reduces the effect of the high prices in oil, making it rather cheap for all the countries and especially for the Eurozone area. The record high exchange rate of the Euro vis-a-vis dollar followed by a subsequent high of the crude oil price, suggests on a relation between the price of the oil and the evaluation of the US dollar. The main aim of this research is to construct an restricted Vector Autoregressive estimation model to simulate the relation between the exchange rate of the U.S. dollar and Euro against the West Texas Intermediate (WTI) prices for light crude oil, in connection with the impulse response of the prices to the various shocks. Lastly, a co integration test will illuminate the possibility of simultaneous long term integration along with Granger causality test to estimate the direction of causality in variables.

Inflated: how money and debt built the American dream

Preface. Acknowledgments. Introduction. Chapter 1 Free Banking and Private Money. The Bank of the United States. State Debt Defaults. The Age of Andrew Jackson. The Panic of 1837. The Gold Rush. The Rise of Bank Clearinghouses. Chapter 2 Lincoln Saves a Nation by Printing Money. The Lincoln Legacy. Financing the War. Salmon Chase and Jay Cooke. Fisk and Gould Profi t by Infl ation. The Panic of 1873. Gold Convertibility Restored. The Battle Over Silver Money. A Changing American Dream. The Silver Compromise. Chapter 3 Robber Barons and the Gilded Age. The Age of Speculation. Republicans Embrace Inflation. The Panic of 1893. The Cross of Silver. The Evangelical Silverites. The Turning Point: 1896. Chapter 4 The Rise of the Central Bank. The Progressive: Theodore Roosevelt. A Flexible Currency. The Crisis of 1907. The National Monetary Commission. The Passage of the Federal Reserve Act. Roosevelt, Wilson, and the Politics of Reform. Chapter 5 War, Boom, and Bust. The Fed During WWI. A Return to Republican Normalcy. The Roaring Twenties. A New Era of Debt and Investing. The Rise of Consumer Finance. America Transformed. Prelude to the Depression. Bust: Stocks Fall and Tariffs Rise. Inflation versus Defl ation. Ford, Couzens, and the Detroit Banks. Chapter 6 New Deal to Cold War. FDR and the Era of Broken Precedent. The Seizure of Gold and Dollar Devaluation. Dollar Devaluation Hurt World Trade. The Rise of the Corporate State. The Reconstruction Finance Corporation. Central Planning Arrives in Washington. FDR Embraces Federal Deposit Insurance. The Legacy of FDR. The Fed and the RFC. Corporativist Reform at the Fed. America Goes to War. Wartime Inflation and Debt Finance. Bretton Woods and Global Infl ation. Chapter 7 Debt and Infl ation: A Rising Tide Lifts All Boats. Federal Revenues Grow. The Fed Regains Independence. The Post-War Economy Soars. The Legacy of War. Cold War, Free Trade. The Dollar's Golden Age. Global Imbalances Return. Richard Nixon's Betrayal. The End of the Dollar Peg. The Return of Sovereign Borrowing. Chapter 8 Leveraging the American Dream. The New Uncertainty. Humphrey-Hawkins and Full Employment. Balanced Budgets and Inflation. Volcker's Shock Treatment. The Crisis Managers. The Latin Debt Crisis. Reagan Reappoints Volcker. The Neverending Crisis. Volcker Exits, Volatility Returns. From Excess to Delusion. The Greenspan Legacy. Chapter 9 A New Monetary Order. The Growth Challenge. Jobs versus Infl ation. Changing Places. Triffin's Dilemma and the Dollar. Notes. Selected References. About the Author. Index.

Food chains and the reasons behind rising food prices

This article addresses the food crisis and its impacts on food chains. There are nine general causes of higher prices: use of grains and agricultural land for biofuels; population growth effects; strong income increase and distribution in emerging economies; urbanization of populations (mega-cities); local government income support programmes; high oil prices; production shortages; dollar devaluation; and investment funds speculation. To face this problem, 10 food chain solutions are proposed: sustainable horizontal expansion in food production using new available areas; vertical expansion increasing productivity; reduction in food taxes; investment in global logistics to reduce waste; use of the best sources for biofuels production; reduction in transaction costs; new generation of cheaper and innovative sources of fertilizers; sustainable supply contracts to farmers for more balanced margins allocation; spreading innovations (GMOs, nanotechnology); and, finally, consumer behaviour changes. The article ends by proposing a 14-point agenda for food chains in the future.

Blind faith: some personal reflections on Nigerian fieldwork

My own interests in Africa were nurtured in the late 1960s as an undergraduate in London, but they took form in, and were shaped by, the great political, economic and social firmament of the 1970s. With the powers of hindsight one can see what an extraordinary decade it was and how it necessarily framed our research programs, both in Geography and the social sciences more generally. The events of that decade bear repeating: an imperialist war in southeast Asia, a troubled American Fordism feeling the pressures of global competition, deepening class struggles over the future of embedded liberalism, the Nixon dollar devaluation and the turn to global financialization, massive volatility in commodities markets especially food and oil, a robust Third World nationalism and a raft of successful revolutionary movements ultimately hobbled by balance of payments deficits, massive public sector debt and Cold War 'low-intensity conflict' and proxy wars, popular energies unleashed by a global environmental movement, and not least, the first stirrings of what was to become, to quote Perry Anderson (2000), the global neoliberal 'grand slam'. My experience of the continent, in sum, came hot on the heels of the rebellion and turmoil of the 1960s and in the wake of the genuinely revolutionary moment of 1968. The 1970s actually became the high watermark for radical theorizing, enriched by exciting (and not so exciting) political experiments, not the least of which were the various African socialisms in the former Portuguese colonies (GuineaoBissau, Angola, Mozambique), in Zimbabwe, Ethiopia, Tanzania and elsewhere. Some locations--one thinks in particular of Dar es Saalam, Zaria, Dakar, Nairobi--became centers of great intellectual vitality often attracting significant numbers of European and North American scholars, and became central to the global debate over development and underdevelopment. Any assessment of what has changed on the continent, and what it might mean for both knowledge production, field research and scholarly collaboration, must start, of course, from the firmament of the present moment. On its face the parallels between now and then are striking: another imperialist war-making adventure (prosecuted not in the name of anti-communism but of global democracy and anti-terrorism), another round of oil and food volatility (and more Malthusian talk of scarcity), another space-ship earth moment (this time detonated by the spectre of global climate change), seething nationalisms (or proto-nationalisms and communalisms of multifarious stripe) in the global south in reaction to decades of structural adjustment and 'economic realism', an anti-imperialism issuing not from the secular or revolutionary Third Worldist left but in the name of political Islam, and, of course, a deep crisis of capitalism triggered by the wreckless commodification of money and monetized assets. This time around one might say that the crisis is defined by the catastrophic consequences of the capitalist project launched in the late 1970s. Naturally the contrasts between the 1970s and the current conjuncture are as striking as the resemblances or repetitions. Nobody would question the observation that US hegemony, from the vantage point of 2010, looks much more rocky. China now appears as a profound counterweight to the American sense of a Pacific Century. The US militarization of its program of global financialization ('military neoliberalism') exceeds virtually anything encompassed by the military Keynesianism of the 1970s. Whether we believe that the last vestiges of the 1960s have been finally swept away, the fact is that neoliberalism does rule undivided across the globe. In this sense Karl Polanyi's (1947) belief that free-market liberalism was finally dead and gone (he wrote at the end of the Second World War) was horribly wrong. At the very least one can say that Africa itself was radically shaped and reconfigured by this neoliberal revolution--the 'counter-revolution' in development theory as it was called--and the continent, as a consequence, looks very different now. …

The End of Chimerica

For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship. In this paper we look at this era as economic historians, trying to set events in a longer-term perspective. In some ways China's economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth. But there were two key differences. First, the scale of Chinese currency intervention was without precedent, as were the resulting distortions of the world economy. Second, the Chinese have so far resisted the kind of currency appreciation to which West Germany and Japan consented. We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.

The post‐conservative orphan: why the USA needs an effective government economic policy

PurposeThe purpose of this paper is to address the root causes of rising imbalances in the US economy. There is the view that the dominance of the liberal economic philosophy among the American decision makers and business elite resulted in marginalization of the role of the economic government. As a result, the US economy is facing problems in many sectors and might be poorly prepared to face the challenge of globalization in the knowledge‐based industries.Design/methodology/approachThe paper provides review and critique of the contemporary literature of “declininists” proclaiming the end of the American Empire.FindingsIn order to restore the strength of the US economy and utilize its potential, Americans must consider a new generation of politicians and legislators capable of reforming the tax system, stepping up the supervision of the financial sector, eliminating inequality in education and reforming the electoral system.Research limitations/implicationsAmerica is at a turning point. The problems of the American economy are home‐made, but their implications are international. In the last two decades the USA pursued a dysfunctional dual dependence on imports of manufactured goods and capital. Allowing the dollar devaluation has been a short‐sighted policy which will have dire consequences on import‐dependent economy and the USA's position in the world economy. Liberal prescriptions of self‐regulating markets cannot replace long‐term government economic strategy which America badly needs today.Practical implicationsSince the liberal wishful‐thinking failed, economists, politicians and legislators should stop evoking conservative liberal mantras and start working on responsible economic policy solutions before the US economy plunges into a deep recession and years of damaging pessimism.Originality/valueRather than repeating arguments of the authors proclaiming the end of American Empire, the paper looks for chances and opportunities for the US economy's rejuvenation in the future.

The global recession risk: dollar devaluation and the world economy

Introduction, Scope and Content Policy Contributions China in Need of a New Paradigm Japan after Deflation The Euro Area Currency Crashes The Restrictions of Policy of the United States Conclusion

Devaluing the dollar: A critical analysis of William Cline's case for a New Plaza Agreement

In his new book “The United States as a Debtor Nation” William Cline estimates that a 28% real effective real depreciation of the U.S. dollar would reduce the U.S. current account deficit from a projected 7.5% of GDP to 3% of GDP. We argue that his projection, which is based on an elasticities model of the U.S. balance of trade, is highly misleading. First downward deflationary pressure on overall foreign price levels from currency appreciation is not incorporated. Second, the negative impact of appreciation on foreign income and absorption is absent. Third, complementary and necessary adjustments in monetary and fiscal policies in the U.S. and its trading partners are not explicitly incorporated into Cline's econometric framework. We conclude that the impact of massive dollar devaluation on the U.S. trade deficit would be ambiguous, but that the macroeconomic stability of the world economy could be seriously undermined.

The devaluation expectations in Hong Kong and their determinants

This paper uses over-the-counter currency options on the Hong Kong dollar to estimate the expected probability and intensity of a Hong Kong dollar devaluation over a one-month horizon, from February 1997 to the end of 1998. It then addresses the issue of the determinants driving these anticipations. It tests both for contagion effects arising from the Asian crisis and for the significance of the double speculative play involving the stock and Hang Seng index derivatives markets. Fears of a substantial depreciation of the yen and the Chinese renminbi along with portfolio reallocation effects and cross-market speculative dynamics proved to have significantly influence devaluation expectations in Hong Kong.

The International Dollar Standard and the Sustainability of the U.S. Current Account Deficit

FOR MORE THAN twenty years the world's richest, most mature industrial economy has drawn heavily on the world's limited pool of saving to support high consumption--in the 1980s by the federal government, and in the 1990s by households. Over the past decade, personal saving has fallen more than government saving (as manifested in the recent budget surpluses) has increased. The huge deficit in the current account of the U.S. balance of payments, equivalent to about 4.4 percent of gross national product (GNP) in 2000, reflects this saving gap. In order to support a normal level of gross domestic investment (historically about 16 to 17 percent of GNP) as well as this increased consumption, America has had to draw heavily on the saving of the rest of the world. On a flow basis, the United States now attracts more capital, net, than all developing countries combined. The balance sheet of the United States has declined in corresponding fashion. From being a net creditor to the rest of the world at the beginning of the 1980s, the United States transformed itself into the world's largest net debtor--to the tune of an incredible $2 trillion or more--by 2000. The cumulative effect of this private foreign borrowing over the last ten years is now reflected in the balance sheets of both American firms and American households. The indebtedness of the personal sector is now a record 1.03 times disposable income; firms in the aggregate also show a very high indebtedness relative to cash flow. Should Americans worry about this anomalous situation? After all, the dollar remains strong, and the United States is unique in having a virtually unlimited line of credit with the rest of the world, which is largely denominated in its own currency. American banks and other financial institutions are relatively immune to currency risk because both their assets, which are largely claims on the domestic economy, and their (deposit) liabilities, of which a substantial fraction is owed to foreigners, are denominated in dollars. Other debtor countries must learn to live with currency mismatches when their banking and other corporate liabilities are dollar denominated but their assets are denominated in the domestic currency. Indeed, this kind of mismatch was the genesis of the great Asian currency crisis of 1997-98. Because Indonesia, Korea, Malaysia, the Philippines, and Thailand had large outstanding, short-term dollar liabilities, they became extremely vulnerable to a currency attack, and the resulting devaluations bankrupted their domestic financial institutions. In contrast, no matter how precarious and overleveraged the financing of American borrowers--including American banks, which intermediate such borrowing internationally--might be, they are invulnerable to dollar devaluation. Does this invulnerability to currency crises simply reflect the greater strength of the American capital markets and the greater wisdom of American regulatory authorities, compared with other industrial countries? No. The fact that the United States is the preferred and highly favored borrower is pure serendipity. How did this accident of history come about? The International Dollar Standard In the immediate aftermath of World War II, confidence in the currencies and financial systems of all the other industrial countries in the world had evaporated. To prevent capital flight mainly to the United States, the European countries as well as Japan imposed tight exchange controls. The relatively stable U.S. dollar was the only major currency in which exchange could freely take place. In the late 1940s, under the Bretton Woods monetary order, other nations declared official exchange rate parities against the dollar, making it the central numeraire for the system. This official monetary order did not create asymmetry among currencies; it simply recognized it.(1) Thus was the dollar enthroned as international money. …

Technology and the Wealth of Nations

1. Introduction Nathan Rosenberg, Ralph Landau, and David C. Mower Part I. Conceptual Overview: 2. Capital, technology and economic growth Michael J. Boskin and Lawrence J. Lau 3. What is 'commercial' and what is 'public' about technology and what should be? Richard R. Nelson 4. Successful commercialization in the chemical process industries Ralph Landau and Nathan Rosenberg 5. International differences in economic fluctuations Steven N. Durlauf Part II. The 'Non-R&D' Influences on Technology Commercialization: 6. Comparing the cost of capital in the United States and Japan B. Douglas Bernheim and J. B. Shoven 7. Strategies for capturing the financial benefits from technological innovation David J. Teece 8. liability and insurance problems in the commercialization of new products: a perspective from the United States and England Peter Huber Part III. International Contrasts in Technology Commercialization: 9. The Japanese pattern of innovation and its evolution Ken-Ichi Imai 10. The organisation of the innovative process Franco Malerba Part IV. The International Environment and the Commercialization Process: 11. Dollar devaluation, interest rate volatility and the duration of investment in the United States Ronald McKinnon and David Robinson 12. Japan's management of global innovation technology management crossing borders Kiyonori Sakakibara and D. Eleanor Westney 13. International collaborative ventures and the commercialization of new technologies David C. Mower Part V. Managing the Commercialization of Technology: 14. The technology-product relationship: early and stages Ralph Gomory 15. Profiting from innovation William G. Howard Jr, and Bruce R. Guile 16. Managing the growth of technical information Sergio Barabaschi Name index Subject index.

U.S. Economic strategies against Western Europe: From Nixon to Reagan

This paper seeks to examine the destabilizing role of the U.S. in international monetary affairs by charting the changing economic and monetary policies of successive U.S. administrations. It suggests that U.S. economic policy since the beginning of the 1970s can only be explained as a reaction to the relative decline of the U.S. economy vis-à-vis Western Europe and Japan. To ward off this decline the U.S. has pursued unilateral policies of dollar devaluation and revaluation which have often worked to the disadvantage of its rivals and the Third World. In detail, this paper examines the nature and consequences of a dollar devaluation policy under Nixon and Carter, of the strong dollar policy of the first Reagan administration, and of the renewed devaluation policies of Reagan's second administration. This paper shows how these policies have evolved against a background of deepening international crisis (and with reference to U.S. geopolitical strategies and the sanction of protectionism). Lessons are drawn for the European Left and future scenarios are mapped out concerning possible geographical alignments at the turn of the century. This paper places the debt crisis in the wider context of an asymmetrical and dysfunctional economic and monetary order.

L'économie française d'ici 1992

Forecasts for the French Economy at the Dawn of 1992 M. Fouet, A. Fonteneau, E. Bleuze As regards the international environment, the two main hypotheses underlying these forecasts are an increase in the oil price, at an annual rate of 12 %, to reach $31 per barrel by 1992, and a recession in the United States as early as mid-88. Combined with a moderately restrictive monetary policy, US budgetary policy is likely to be insufficient to prevent a downward cyclical movement in domestic demand, despite a positive contribution from foreign trade. Given the world trade context, international competition is predicted to become stronger. Despite an end to dollar devaluation, US products will remain competitive and the Asian exporters will be more attracted by European markets. The evolution of the French economy is likely to be affected importantly by the international environment. But the assumption concerning the split between wages and profits is of great importance too. If the moderation in the growth of wages observed for several years persists, as predicted, during the six forthcoming years, household consumption growth is expected to be weak (1.4 % per year) and profits are likely to be used to reduce debts rather than to increase productive investment. After 1989, a pick-up in the growth of world demand and improving competitiveness due to real wage stagnation could lead to a positive contribution of foreign trade. Due to some gains of market share after several years of losses, the manufactures balance is likely to be in surplus at the beginning of the 90s. The pick-up of investment in industry in 1984-1985 and in the tertiary sector since the end of 1985 is predicted to continue, sustained in the short-term by profits, and then by GDP growth (2.3 % per year from 1989 to 1992). Overall, French economic growth seems likely to be led by exports and investment. Nominal wage rates are likely to increase at an annual rate of 3.8 % over the period 1987-1992, compared with 3.5 % for the consumer price index. Margins should continue to improve, this ending only at the end of the period because of the oil price increase, which will lead to an upturn in inflation. The recent slowdown in productivity growth seems to a large extent to be structural, and could permit some growth of employment (+ 210 000 from 1989 to 1992). Taking into account the growth of the active population (+ 180 000 persons per year) and the effects of employment policies, the number of unemployed could reach 3.2 million by 1992. These forecasts underline two sources of deficit for the public and social accounts : the weakness of VAT revenues and of social contributions payed on salaries. To achieve its deficit reduction objective, the government should reduce the growth of expenditure, and stop the tax cut programs launched since 1985. To emphasize how susceptible the French economy is to international development, a more favourable hypothesis is studied at the end of this article.

U.S. bilateral trade balances and the dollar

U.S. bilateral export and import values with seven large trading partners are tested for real exchange rate effects over 1975–1985. The results suggest that dollar devaluation would have the most favorable impact on the U.S. trade balance in the case of Japan and the least favorable in the case of Canada.

Changing industrial buyer-seller pricing concerns

Many industrial marketers feel that price is becoming deemphasized to the extent that quality is being stressed, dollar devaluation experienced, and the shift from cost reduction to service development realized. Others believe that a reemphasis on price is coming about due to current instability with certain imperfectly competitive markets, the increase in product differentiation, and greater (and sometimes new) pressures from outside forces. Regardless of one's position, traditional views concerning price and conventional ways of dealing with it must be reevaluated more thoroughly and often on a more frequent basis.