Why a Dollar Depreciation May Not Close the U.S. Trade Deficit
7 Pages Posted: 30 Jul 2007
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: trade deficit, exchange rate, invoicing, vehicle currency, pass through
JEL Classification: F3, F4
Suggested Citation: Suggested Citation