Five economists testifying before the Joint Economic of Congress yesterday expressed skepticism about the Reagan administration's recent interest in how to achieve greater stability in currency exchange rates.But four of them supported Treasury Secretary James A. Baker III by arguing that the dollar remains too strong against other major currencies; they said it would be beneficial for the dollar to move lower.
Unless the dollar declines more, a majority of the panel said, American exporters will not regain their competitiveness and the deficits in the U.S. trade and current accounts will not contract.
Supporting Baker's position were Paul Krugman of the Massachusetts Institute of Technology; former under secretary of State Richard Cooper of Harvard University; Rimmer de Vries, senior vice president of Morgan Guaranty Trust Co.; and William Branson of Princeton University.
But Rudiger Dornbush of M. I. T., echoing a statement by Federal Reserve Board Chairman Paul A. Volcher, said that the dollar had declined enough. Dornbush said that, as a result of the downward dollar adjustment so far, the U.S. current account dificit would be cut from 2.5 percent of Gross National Product to 1 percent by 1988.
Forcing the dollar lower to get rid of the remaining current account deficit would be too costly in terms of inflation, Dornbush contended.
The economists favored a study of possible steps to achieve greater exchange-rate stability, but they expressed doubt that it was feasible to get greater control of the system through "target zones." In a target-zone system, the cooperating nations would agree to keep their exchange rates within a fairly wide band.
Krugman said the wide swings in currency rates in the past two years show that "completer free-floating nees to be restricted by at least occasional exchange-rate management." But he said that "the bottomm line is that a fundamental reform of the international monetary system still does not look like a good idea."
De Vries, Branson and Dornbush said that the conditions necessary for better coordination are not at hand. Dornbush added that the notion that any government "will sacrifice its fiscal autonomy to an exchange rate target . . . is simply well-intentioned pie in the sky."
Cooper, who was the chief economic policy adviser in the State Department in the Carter administration, added that a global monetary conference would be "vastly premature" to this time.
As to the current level of the dollar, Cooper called for a further decline of between 10 and 20 percent against other major currencies as soon as possible, with the help of direct intervention in foreign exchange markets.
Krugman agreed that the dollar would have to fall more for the United States to regain the competitive position it held in the 1970s. He cautioned against attempts to push the currency down by an easier monetary policy, saying that "woud run a substantial inflation risk."
The five economists agreed on two points: The dollar in any event will continue to decline on the basis of market forcrs; Japan, West Germany and other major nations should stimulate business activity. They singled out West Germany for not taking policy actions along this line.
"The best thing we could do is to try to get Congress angry at the Germans," Krugman said.