December 21, 2004

EICHENGREEN and DeLong are wrong. A current account correction does not spell doom. Quotable:
while it may true that the falling dollar and resulting current account adjustments could yield some upward pressure on the price level, those pressures should be temporary. The FOMC has worked long and hard to keep such transitory ups and downs in the rate of inflation from becoming embedded in private expectations. We can at least hope that Fed credibility will see us through whatever adjustments are to come, without the need for extraordinary measures to contain the inflation trend.
Posted by Greg Ransom | TrackBack