if simultaneous nations are trying to devalue their currency to induce foreign trade, would this be deflating?
Assuming that they're on equal footing, NO CHANGE WOULD occur. Say $1 = 100 Yen. US money stock : $100 JApan money stock: 10,000 yen Both decide to double money stock (devaluation) US money stock: $200 Japan money stock: 20,000 yen Currency rate: Still $1 = 100 yen. This is assuming that inflation is expected (rational expectation). If inflation is unexpected and applied equally, we have hyperinflation for both country. Nevertheless their currency rate would always remain the same.
thanks for replying; but i was thinking, since a yen that is appreciating would generally mean a depreciating dollar: and since both the japanese and the u.s. want a weaker currency... how would this be achieved for both countries to devalue their currency at the same time? wouldnt this be deflationary ? thanks.
So yen depreciate FIRST, just they're not on equal footing. They canNOT have weaker currency relative to each other at the same time! Not conceivable. Both could be weaker against the Euro for instance, but not each other. Mathematically and common sense wise, Impossible.