Exchange Rates, Trade Deficits, and U.S. Prices

S. Devadoss, William H. Meyers, Stanley R. Johnson
July 1986  [86-WP 10]

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Devadoss, S., W.H. Meyers, and S.R. Johnson. 1986. "Exchange Rates, Trade Deficits, and U.S. Prices." Working paper 86-WP 10. Center for Agricultural and Rural Development, Iowa State University.


Granger Causality tests are run to examine the causal relationships between the trade deficit, another macroeconomic variable, and U.S. prices. The results show that strong causal relationships run from the trade deficit to agricultural prices but not to nonagricultural prices. Results of causality tests also indicate that the huge trade deficit is caused by a strong U.S. dollar.