Working Papers

Contrarian Indicator Alert: Roubini’s ‘Structural Gravity Force’

Nouriel Roubini dusts off his US dollar bear call, relying on that old faithful of structural US dollar bears, the current account deficit:

The large, still growing and eventually unsustainable US current account deficit is the structural gravity force that will keep on weakening the dollar over the medium term.

These ‘structural gravity forces’ must work differently for Japan, which runs a structural current account surplus while its real effective exchange rate is making 21 year lows:


It seems that ‘gravity force’ doesn’t work at short horizons either:

I am not in the business of predicting high frequency movements of currency over the horizon of a week or a month. But my macro and medium-term perspective tells me that fall of the dollar – over the medium term – has still a very long way to go.

posted on 19 December 2006 by skirchner in Economics, Financial Markets

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