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April 14, 2008


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rolf vom dorp

Comment on your paper Some Simple Analytics for a Hard Landing.

I like your stuff. We are in the end soul mates. But after painful hours I found some errors.mainly algebraic, which does impact reasoning.. If I am wrong let me know.

Assuming 1 to 9 are correct
12 is wrong. First term on rhs is negative. An increase in foreign reserves diminishes home GDP.
13 is not correct. Lacking a minus sign before rhs erdeltaR. Sorry I do not have the time to write Greek.

This effects combined 12 prime. All terms are positive. This seems strange that an increase in Foreign Reserves would increase home economic activity. This is because the increase in R has diminsed by 13 the rise in real rates.

Moving on when in 15 foreign banks diminish dollar purchases Ie delta R falls then we have an AD shift to left. as you correctly identify in your figure 3. But this occurs not by 15 as noted but by 15 without minus sign.

I would like to add to your reasoning.
. The AD original position is due to the artificial raising of foreign reserves. Example. Since the China and Asian export boom combined with reserves accumulation this shifted US Ad curve to right, ourwardly. One might say this raised full employment potential over natural level. A reduction in Foreign Reserves will of course shift AD inward with a resultant reduction to a more natural level…

Please keep up the good work.

You are an inspiration to me.

Rolf vom Dorp

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