Exchange Rates

Earlier this week, Greg Mankiw (HT) linked to an excellent column in The New York Times. It is by Christina Romer, former chair of the President's Council of Economic Advisors. In it, Dr. Romer gives as clear and lucid an explanation of exchange rates as I can recall in some time. She explains what it means for a currency (in this case the dollar) to be strong and what that really implies. Most importantly she makes a case of why discussion of the exchange rate is needed if people are going to understand the broader economic picture.

Too often our students lose sight of the fact that the exchange is the price of securing a tool - a tool necessary for conducting business in a different economy. And whether it is Americans seeking to conduct business elsewhere or foreign citizens seeking to conduct business in the U.S., it is necessary to have the right tools.

Please take a look and share your thoughts.