Dollar Depreciations and Inflation

The dollar has depreciated 24 percent on a broad trade-weighted basis since its peak in February 2002, posting its biggest losses against currencies of the major developed countries. Since late January 2002, for example, the dollar has lost 41 percent of its value against the euro. A dollar depreciation—all else constant—raises the price of all U.S. traded goods. It directly increases the dollar price of U.S. imports. Likewise, it directly lowers the foreign-currency prices of U.S. exports, but this will shift foreign demand toward our exported goods and, thereby, raise their dollar prices. These price effects are important; they foster the adjustment in our international trade and financial accounts. Series Title: Economic Trends Title: Dollar Depreciations and Inflation Date: 12.12.07 Publication: Author(s):Owen Humpage Michael Shenk Type: Economic Trends Topics(s): Inflation and Prices International Markets and Foreign Exchange