Econometric analysis conducted by Menzie Chinn, Professor of Economics at the University of Wisconsin, untangles variety of factors at play that can explain the valuation of the US dollar. He discovers that traditional variables such as inflation, interest rate, and GDP growth relative to the rest of the world, still explain significant variation in the US dollar value. But the most striking element he found was the global economic policy uncertainty channel, which attributed to about 12% appreciation of the dollar over the period 2017Q1-2019Q2 – the highest relative to the other variables.
Why does this matter? US trade policies can easily be credited as the single biggest addition to the recently elevated uncertainty surrounding global policy. With this plot, is it fair to search for villains outside (currency manipulators) where real culprit for the strong value of the US dollar are its own policies?
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