By Arnold Kling
1. File this story under “collapsing center watch.” (Yesterday, I linked to my response to a NYT question about the state of the economy. In that response, I changed the subject in order to mention my view that the political center has collapsed.)
2. File this story under “portfolio balance model fails again.” The story describes Switzerland, Japan, and Brazil as having each attempted and failed to weaken its currency. One theory of how central banks affect things is that they disturb “portfolio balance” and people respond. So if you increase the supply of Swiss Francs relative to euros, you disturb portfolio balance until the value of the Franc falls. Doesn’t seem to have worked.
Of course, even without the portfolio balance model, it is natural to assume that a central bank can devalue its currency if it really wants to. I don’t claim to be able to explain how Switzerland, Japan, and Brazil could have failed to achieve this objective.