Steve DeLoach’s (Associate Professor, Economics) paper, “More evidence in favor of the Balassa-Samuelson hypothesis” has been included in a new tribute to Nobel Prize winning economist Robert Samuelson.
The 3 volume set, Paul A. Samuelson: Critical Assessments of Contemporary Economists, (Editors John Cunningham Wood, Michael McLure) was recently published by Routledge. As the editors note, “this collection gathers the essential assessments of this important economist, and provides an unparalleled insight into his lasting impact on economics throughout the last century to the present day.”
DeLoach’s paper finds strong support for Samuelson’s hypothesis that a domestic currency appreciates in value when that country’s sustainable growth rate increases. But the paper also finds that additional shocks, most notably oil prices, need to be considered. Since oil prices appear to have a stronger effect on the US dollar than any other currency examined, any attempt to predict long-run movements in foreign currency per dollar exchange rates will be wrong. The determination of long-run exchange rates is crucial to understanding and predicting currency crises such as the recent Asian financial crisis in the last 1990s. DeLoach’s paper originally appeared in the Review of International Economics in May 2001.