Americanization of global finance (cont.)

Enrique Diaz-Alvarez enrique at anise.ee.cornell.edu
Thu Sep 23 10:21:15 PDT 1999


Doug Henwood wrote: <quote>


> Coordinated intervention would run counter to the interests of the
> U.S. and Europe. A weak yen would exacerbate the U.S. trade deficit
> and would jeopardize Europe's nascent recovery. Even more
> significantly, the expectation that the yen-dollar rate would rise at
> 8% a year would cause investors to borrow dollars and invest in yen
> until the interest differential just balances the 8% expected rate of
> yen appreciation. Since Japanese interest rates cannot fall further,
> the adjustment of the interest differential would have to occur by an
> increase of the dollar interest rates to at least 8% from today's 5%
> level.
>

Isn't it the other way around? Intervention would cause expectations of yen depreciation, which would cause poeple to borrow in yen and invest in dollars, thus reducing US interest rates?

-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique



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