2007-12-19 11:18:05 · 2 answers · asked by xpxhunter 1 in Social Science ➔ Economics
Same as usual. Recessions and exchange rates are not related at all. Things that impact exchange rates are inflation, budget deficit, and trade balance. Neither of the three is in sync with the business cycle. For example, during the Great Depression, inflation was negative, the government had a budget surplus, and U.S. imports were restricted by the Smoot-Hawley Act. As a result, the dollar appreciated substantially, never mind the 25% unemployment...
2007-12-19 13:38:40 · answer #1 · answered by NC 7 · 1⤊ 0⤋
Heard of Impossible Trinity Theory? Exchange Rate is the end result of US monetary polity on interest rate. Now, in a recession, the government could be continuing to reduce interest rates to combate recession. This could lead to more hot money out the country and futher weakening of the dollar, until such a time when the weak dollar starts to pull in more export demand from abroad. At this time we have an equilibrium.
2007-12-20 21:30:02 · answer #2 · answered by peaceseeker22 2 · 0⤊ 0⤋