Date: April 17, 1987 Creator: Wilson, Arlene Description:
Mainstream economic theory suggests that U.S. budget deficit was
the main cause of the dollar appreciation between 1980 and early
1985. The high budget deficit forced the U.S. Government to
compete against the private sector for available savings,
raising interest rates in the United States. In response, net
capital inflows to the United States increased, the demand for
dollars on the foreign exchange market went up, and the dollar
appreciated. Restrictive budgets and loose monetary policies
abroad, both of which kept interest rates low abroad, also
contributed to the dollar’s appreciation on over this period.
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