[QUOTE="coolbeans90"][QUOTE="topsemag55"] When Bernanke did the QE purchases, they were done in a measured fashion versus all in one sitting. He could simply reverse that the same way he started it, in measured increments over the same amount of time. This would cause DXY to rise back up again - probably not to 80, but close enough to where the price of oil does start dropping. When the dollar goes down, it makes it cheaper for other nations to buy dollars for oil, but it kills the U.S. because we're paying more for oil.topsemag55
This begs a few key questions:
1) How useful was QE at promoting growth and preventing deflation
2) How significantly did the drop of the index affect the prices of oil (and gasoline) Also, the opposite quesion: how much will a targetted rise in the index lower oil prices?
3) How much will the contractionary monetary policy restrict growth
Regarding the third question, merely because a policy is slower in the implementation process doesn't mean that it doesn't have an effect. (albeit shocks are less likely, I would imagine) There is a relationship between the amount of currency in supply with growth and the rate of inflation.
1. Not useful at all, tbh. 2. The index is based upon the dollar versus a basket of selected currencies. As I said before, the dollar going down makes it cheaper for other countries to buy dollars to buy oil, but not the U.S., a stronger dollar does drive down oil. Gas was around $2.50 - 2.70 when DXY was at 80. It could even be less than that if speculators sell versus buy, as they drive up the price which exacerbates everything else. 3. Growth won't suffer as much as some would think if the pace of reversal is done correctly. All Bernanke would be doing is selling the bonds he purchased, he just sells the right amount to keep growth limitations in check.1) There is room for the argument that QE didn't stimulate growth, granted. But it almost certainly prevented deflation.
2) The problem here is that you are assuming a causal relationship. Various factors play into gas prices and their changes, and it is simply unjustifiable to attribute the jump entirely to the drop in the index, considering the inherent volatility of oil prices. How much, exactly, of the rise in oil prices is due to policies like QE is absolutely essential.
3) Which brings us back to, more or less, the first question: Where exactly would we be had QE not been implemented? Without a counter-factual, it really is difficult to know. That said, it is, for the most part, consensus amongst the economics profession that deflation is undesirable.
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