Robert Mundell, the great economics Nobelist who with Arthur Laffer founded supply-side economics, has long made the point that the dollar-euro exchange rate is the most important price in the world. Change that exchange rate in a big way—a fifth is plenty big—and all sorts of new decisions will come in terms of where one plans to invest, produce, and and sell. Trade economics speaks of the “law of one price.” All over the globe, prices in every economy are arbitraged against the exchange rate. So if that exchange rate changes, all prices change. Under normal demand and supply conditions, the residents should buy more of the export good and produce less of it.

Source: Forbes February 06, 2018 20:26 UTC