Saturday, October 27, 2007

Will Exports Prevent a Recession?

The troubles in the housing market create the risk of a recession for the US economy - a decrease in homebuilding reduces the "residential" part of investment, and the decrease in household wealth may reduce consumption (this effect is apparent in this NY Times story on the share prices of department stores). However, aggregate demand is getting a push in the opposite direction from net exports, as the declining dollar has increased foreign sales of US-made goods. Will this save us from a recession? At Econbrowser, Menzie Chinn has an interesting look at the historical evidence.

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