Depreciation question

[bluefin]

In recent years, the dollar has depreciated sharply vis-à-vis the euro.
Suppose that in the short run the Fed wanted both to defend the dollar (i.e. stop its decline and/or cause it to appreciate) and lower i (and therefore r) to stimulate domestic investment. Can it achieve both of these goals simultaneously through monetary policy?

[bart]

Re: Depreciation question

In recent years, the dollar has depreciated sharply vis-à-vis the euro.
Suppose that in the short run the Fed wanted both to defend the dollar (i.e. stop its decline and/or cause it to appreciate) and lower i (and therefore r) to stimulate domestic investment. Can it achieve both of these goals simultaneously through monetary policy?

If monetary policy includes behind the scenes manipulation, then yes. But fundamentals will always assert themselves eventually.

[jk]

Re: Depreciation question

In recent years, the dollar has depreciated sharply vis-à-vis the euro.
Suppose that in the short run the Fed wanted both to defend the dollar (i.e. stop its decline and/or cause it to appreciate) and lower i (and therefore r) to stimulate domestic investment. Can it achieve both of these goals simultaneously through monetary policy?

if i understand "i" properly, you are asking whether the dollar can be defended and simultaneously reduce inflation by raising rates. yes? things don't seem to work that way anymore. raising rates would slow the economy, drop the stock market and cause hot money to leave for happier climes. the rate differential is important in the currency relationships, but rising markets have become more important imho. in fact, one definition of a real big-time bubble is that in some form it attracts capital from all around the world.