Menzie Chen on currency wars

You know I don’t believe that the “currency war” is a negative thing in a world of insufficient demand (*,*,*,*,*).  But Menzie Chen from Econbrowser has the same view – and to be absolutely honest their view is significantly more reputable than mine 😉 .  Furthermore, it was a point that Chen made all the way back in 2010!

The post I have linked to is excellent, I would suggest reading it the whole way through.

The global economy is not a zero sum game.  The fact that we have significant “output gaps” (unused labour and capital) is the justification for trying to get private agents to “bring forward” consumption and investment now – which is what monetary easing in all its forms does.

In New Zealand, the hard question seems to be “how close are we to filling our output gap” – as if we are close (a popular, even mainstream, view in NZ, that I am not sold on) the current high dollar is indeed indicative of NZ inoculating itself from this global monetary easing.  This is a separate issue again from the “persistently high real exchange rate” that New Zealander’s are concerned about – this is an issue largely unrelated to monetary policy, where as a society we have to start being more honest about the trade-offs from different policy settings we have put in place.