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.See also current16, 117-18account deficit; current accountsustainability, 39, 46-47, 50, 61, 180surplusdollar depreciation needed for, 50and behavior of dollar, 57, 58-59, 61, new economy forces and, 44-45,62-65, 69-70, 71-7344fof Europe/euro zone, 25, 29, 30f, 183tviews on, 6-8of Japan, 181, 182, 183t, 184-85, 184f,and US foreign yield spreads, 47, 48f,186t50vs.BBoP, 23, 24fcurrent account deficit-to-GDP ratio, 47,impact parameters for, 190-91, 191t58-60, 61, 62-63, 64f, 175modeling, 190-92, 198-202, 200f, 202t danger zone of, 57, 61, 155-56and surplus reduction.See Japan,and dollar behavior, 62-65, 69-70, 71-current account surplus73, 71treduction inin new economy, 44f, 45sustainablesustainability analysis based on, 57, 60-definition of, 6061, 62-65, 70-73differing views on, 6-8in unchanged-dollar scenario, 69-70of US, 180-85, 183t, 184f, 186t.See alsoUS, 61, 63, 64f, 175current account deficit, UScurrent account surplusvs.BBoP, 18, 18fcountries with, 185, 186tworld discrepancy, 182-84, 183tand currency manipulation, 269current account deficit(s)Japanese, reduction of.See Japan,countries with, 185, 186tcurrent account surplus reductionand productivity growth, 6-8, 179-80current account trajectory, sustainable,sustainability analysis based on, 57, 58-definition of, 6060, 60-61, 62-65, 69-73benchmarks in, 60-61, 63-65and dollar value in 2003, 69-70 debtand unchanged-dollar scenario, 69- external70 dangers of, 57, 61, 155-56current account deficit, US, 2, 57, 65, 175- trade imbalance and, 154-55, 154t76, 180-85, 183t, 184f net US294 DOLLAR OVERVALUATION AND THE WORLD ECONOMY through 2017, in MA model, 123t, reduction of, views on, 6-8128t desirable magnitude of, 6-8, 36vs.foreign capital inflow, 118-19,beyond equilibrium value, risk for, 50-118f52deflation, 5-6, 130, 166-68Europe/euro s role in, 6, 8, 9-10, 24-27,arresting through dollar depreciation,346, 169-70, 172, 173 fast decline scenario, 120, 121t-125t,and Europe, 167127-29, 128t, 130-31, 172in Japan, 53, 170features of, 15-34demand, domestic.See domestic demand gradual decline scenario, 120, 121t-demand, US125t, 126-27and dollar exchange rate, 89impacts of, 27-29, 28t, 169-70domestic, 85on auto industry, 138-40, 139ffor goods, 1990-2002, 90-91, 91fon deflation, 6, 169-70, 172, 173for goods, 2000-02, 111on European economy, 27-29, 28t,foreign, 8534, 170, 213for goods, 2000-02, 111on exchange rates, 28, 28tproductivity and, 85on financial conditions, 27-29, 28tDepartment of the Treasury (US).See USon global economy, 169-70Treasuryon productivity growth, 27-28, 28t,deutsche mark-dollar exchange rate29, 1701977-2002, 219, 221fJapan/yen s role in, 3-5, 8-9, 9n, 19-22,1995-2002, 41-42, 41f34interest rate differentials and, 41-42,likelihood of, 8242fmodeling of, 82-83interventions affectingin national accounts identity, 112by Bundesbank, 231-33, 231f, 232t,need for, 161234tand productivity growth, views on, 6-8efficacy of, 252shock causing, 82-83by US, 236f, 239t, 240-41, 240tdollar exchange value, 1-5, 58.See alsodeveloping nationsdollar depreciation; dollardebt of, exchange rate and, 156overvaluation; dollar swingsfear of floating currencies, 162in 2003, scenarios for, 69-73, 71f, 71tmanufacturing sector employment in,1990-2002, 1-5, 4t87vs.1980s, 1, 219-23disequilibrium phenomenon1995-2002, 59fcost to economy, 81nappreciation in 1999-2000, asdollar s rise as, 45-50disequilibrium phenomenon, 45-50disinflation policy, 167-68capital inflows and, 89distraction risk, 259and competitiveness, 46, 83-99dollarcurrency manipulation s limits intarget zones for, 81ninfluencing, 271-72dollar depreciation, 15-34current account factors and, 57, 58-59,2002, 3, 58, 59f61, 62-65, 69-70, 71-731959-2001, 112-16, 113f, 114fcycle for, 37, 50-52, 51f1985-1995, and auto industry, 138-40,vs.deutsche mark.See deutsche mark-139fdollar exchange ratearguments for, 5-6equilibriumcounterpart currency appreciation, 3-5,assessment of, 35-568-10, 16-17countries/currencies involved in, 3, depreciation beyond, 50-528-10, 16-17, 34 IMF macroeconomic balanceand current account deficit, 2, 6-8, 57 approach to, 38-39, 38fINDEX 295 new economy forces and, 36, 40- non-US, dollar depreciation impact on,45, 44f, 179-80 169-70in postbubble economy, 166vs.euro.See euro-dollar exchange rateUS, 85floating, US manufacturing and, 83-98for goods, 1990-2002, 90-91, 91fforces and factors in, 58for goods, 2000-02, 111global wealth invested in US assetspolicy on, 173and, 58-59, 60, 61-62, 63, 65-69, 70-US-world disparities in, 169, 169f73 double-dip recession, 5, 165interventions affecting, in 1980s vs.1990s, 219-23issues surrounding, 5-12economic openness, internationalneeds of, conflicts with othercomparison of, 208-09, 208t, 215tobjectives, 256-61, 256f, 257f, 258n-economic policy.See also fiscal policy;260nmonetary policy no-change scenario for, 69-70, 171-72conflicts with exchange rate needs,vs.yen.See yen-dollar exchange rate255-62dollar holdings.See foreign exchangeinstruments for managing interest rate,reserves10-12dollar overvaluation, 36, 175-76, 179-80in Japan, dilemmas of, 177-78extent of, 17-19monetary-fiscal mix, 54, 55ffactors in, 96-98in Japan, 177global problems of, 156-57in postbubble economy, 166impacts of, 145-46, 161 for price stabilization, in 1990s, 168-long-term, 151-56 69objectives of, 255short-term, 146-51recommendations for, 160-62on US trade policy, 78-79Ecuador, 282nmanufacturing sector impacts ofshare of trade with Japan vs
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