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The good news is that a competitive dollar in the global market and a strong dollar at home are compatible in both the long run and during the transition to a more competitive dollar.

Martin Feldstein

Home

News

So just as I want pilots on the planes that I fly, when it comes to monetary policy, I want to think that there is someone with sound judgement at the controls.

My theme this evening is that America needs a competitive dollar.

And finally, no matter how good the science gets, there are problems that inevitably depend on judgement, on art, on a feel for financial markets.

Increased government spending can provide a temporary stimulus to demand and output but in the longer run higher levels of government spending crowd out private investment or require higher taxes that weaken growth by reducing incentives to save, invest, innovate, and work.

But because we in the United States finance our current account deficit by borrowing in our own currency, we can move to a more competitive dollar without the adverse effects that followed currency declines in other countries.

If the Federal Reserve pursues a strong dollar at home while the dollar becomes more competitive in global markets, we can achieve both price stability and a more balanced path of economic growth.

I think that over the last few decades, we have seen better economic outcomes than in the past.

Martin Feldstein

Past

Homeowners who refinanced their mortgages took out cash and reduced their monthly payments at the same time. Much of the cash obtained by refinancing was spent on consumer durables, home improvements and the like.

Martin Feldstein

Home

Time

First, I think the science of monetary economics has clearly gotten better.

Even if the dollar does decline during the coming months, the delays in the response of exports and imports to the more competitive dollar will mean that the increase in aggregate demand from this source may not happen for a year or more.

Domestic inflation reflects domestic monetary policy.

Martin Feldstein

Policy

Inflation

But then in April of 1985 the dollar began a sharp decline. The dollar's trade weighted value fell 23 percent in just 12 months and by a total of 37 percent by the beginning of 1988.

Inflation is lower and more stable and the real business cycle fluctuations are more modest.

Martin Feldstein

Business

Inflation