That being said, I think the important variable — that we have control over — is the exchange rate. Figure 5 plots the real value of the dollar against a broad basket of currencies.tr5.gifFigure 5: Log real trade weighted value of the US dollar, against a broad basket of currencies. NBER recession dates shaded gray. Source: Federal Reserve Board via St. Louis Fed FRED.The more expansionary the monetary policy either directly by increasing money supply, or by increasing inflationary expectations, the more we can drive the dollar down against other currencies, including the RMB and other East Asian currencies. If foreign demand holds up, then exports will continue to grow elasticity estimates here; HSBC argues that BRIC economies are doing that — with the exception of China.
