Well, presumably that would lead to a step-up in the U.S. saving rate. We would get some benefit from a dollar decline. Remember, a drop in the dollar is a very expansionary shock to the U.S. economy. When we run that shock sort of naked, the way we did this time, and ask the model what the outcome would be, the Taylor rule wants monetary tightening. And we still get some more output and some more inflation because it’s a very expansionary shock. But if it happens in the context of something like a loss of confidence, these residuals that were just being discussed presumably would go up in other countries, too— ones without all of the attributes of the United States, such as Brazil, Argentina, and Korea.
These kinds of shocks tend to be associated not with expansionary macroeconomic outcomes but with recessionary macroeconomic outcomes because, despite the fact that the exchange rate gets a relative price boost, these other events cause such havoc and disrupt fiscal policy and so forth that there’s often monetary tightening to counter the inflationary effects. But also there’s stress in the financial markets and stress in investment spending, and fiscal policy gets off track and, all in all, you get a recession movement, not an expansion, despite the exchange rate shock. So out of context, it’s just very difficult to put these added features into the equation along with the exchange rate. One could do dozens of these simulations, and I would have no way of attaching probabilities to them, to be honest.