Does Exchange-Rate
Management Have a
Role in the U.S. Macro-
Policy Tool Kit?
Stabilization is Not Wise Policy if the Current Account Continues
to Deteriorate
By Michael R. Rosenberg
Michael R. Rosenberg is
Managing Director of Harbert
Management Corporation.
When this article was written,
he was Managing Director and
Global Head of FX Research at
Deutsche Bank. Prior to joining
Deutsche Bank, he was a managing
director and head of
international fixed income research at Merrill Lynch. Mr. Rosenberg also managed
Prudential Insurance Company’s global bond portfolio
and was a senior FX/money market analyst at Citibank.
He has written two books and numerous articles on international
bond diversification and the foreign exchange
market for various academic journals and handbooks,
and he currently teaches an MBA course in international
financial markets at Baruch College. He holds a BS in
accounting from the University at Albany, an MA in economics
from Queens College, and a Ph.D. in economics
from The Pennsylvania State University.
Given the rather large swings that the dollar has
undergone in recent years, a number of observers are arguing that policy steps should be undertaken to stabilize
the dollar around present levels. We make the case
that exchange-rate management should not play a role
in the U.S. macro-policy tool kit and, indeed, argue that
the United States needs to convince policymakers overseas
to allow their currencies to contribute to the U.S.
trade-adjustment process. We show that the dollar needs
to fall further, and likely quite sharply, in order to promote
an orderly return of the U.S. current-account deficit
to a sustainable level.
