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The substantial, sustained real appreciation of the dollar during the first half of the 1980s and its subsequent depreciation since February 1985 are perhaps the most debated and discussed macroeconomic events of this decade. According to one influential view (as put forth by Blinder(1986), Branson (1985), Frankel(1985), and Sachs (1985)), the strong dollar of 1980 through early 1985 was the result of a significant shift in the United States policy mix toward persistent structural budget deficits and a credible, anti-inflationary monetary stance on the part of the Federal Reserve. Other authors(Obstfeld(1985), Poole (1985), and the Council of Economic Advisers(1985, 1986)) have linked the real appreciation of the dollar in the years following the 1981-82 recession to the surprising surge in real business fixed investment spending. Still another hypothesis (which has been explored by Frankel(1985)) is that the rise and …