Search This Blog

Tuesday, May 22, 2007

Mankiw on China Trade

I haven't agreed with Dr. Mankiw in a while - but one of his latest posts on the 'problem' (or lack thereof) of China fixing its nominal exchange rate, is spot on!

Having said that...

mvpy said...

"This is right in theory, but not in practice. Real and nominal exchange rates track each other very closely, even over long periods - since prices are sticky. Slaughters argument is based on PPP holding - but PPP is a notoriously Pretty Poor Predictor. Whether PPP even holds over long periods is a hotly debated topic."

I suppose the overall point to be made is that, with trade, there are other things the US could be worried about rather than on China's exchange rate.

Like our own lack of private Savings in the US......

No comments: