This account of exchange rates in the international monetary system considers the issues in international macroeconomics. Using theoretical models of international economics it explains the effects of various policies and issues in macroeconomics.

In an outstanding account of exchange rates inthe international monetary system, W. Max Corden considers the essential issues in international macroeconomics.The author takes as his model the macroeconomic situation of a country with an open economy, and explains the effects of domestic fiscal and monetary macroeconomic policy on exchange rates. He clearly analyses the choices faced by governments attempting to manage both the domestic inflation rateand the external exchange rate and current account balance. Professor Corden then discusses the European Exchange Rate mechanism, and provides a sceptical analysis of the possibilities for monetary union in Europe, and for international policy coordination in general. He gives equal weight todiscussion of the present US-centred international monetary system outside the ERM, and combines theoretical models with an account of the actual determination of floating exchange rates. Although the book itself is orientated towards monetary rather than trade issues, the author discusses twotopical issues: the role of protectionist policies, and the idea of competitiveness. Finally, he looks at the future of the international monetary system and the series of current reform proposals.Students will find this book useful because the author covers essential issues lucidly and authoritatively. The exposition is entirely non-mathematical. Postgraduate students and academics will be interested since Corden is a distinguished writer on international trade and policy, and hisarguments are powerfully presented.New to this edition:This is a revised and expanded edition of a previous book by Corden, Inflation, Exchange Rates and the World Economy, the third edition of which was published in 1985. In this new book, Professor Corden has fully rewritten the text, but retains the discursive, informal, reader-friendly style ofthe earlier editions. In this new edition, Professor Corden has included two new chapters which extend the treatment of macroeconomic policy, separating it into its fiscal and monetary branches. He also includes a new chapter on the role of the current account balance in determining macroeconomicpolicy. The author has brought his account of the present international monetary context up to date - characterised as the non-system - and has included a new analysis of European monetary issues, incorporating a review of the progress of the EMS towards full monetary union. The book also containsa provocative discussion of two highly topical issues: trade protection, and competitiveness, including both new theoretical analysis and such events as the recent GATT agreement.

Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.

What guidance does academic research really provide to economic policy development? The critical and analytical surveys in this volume investigate links between policies and outcomes by surveying work from broad macroeconomic policies to interventions in microfinance. Asserting that there are no universal correspondences between policies and outcomes, contributors demonstrate instead that only an intense familiarity with the development context and the universe of applicable economic models can generate successful policies. Getting cause-and-effect right is essential for policy design and implementation. With the goal of drawing researchers and policy makers closer, this volume highlights our increasing understanding of ways to combine economic theorizing with careful, thoughtful empirical work. - Presents an accurate, self-contained survey of the current state of the field - Summarizes the most recent discussions, and elucidates new developments - Although original material is also included, the main aim is the provision of comprehensive and accessible surveys

An analysis of the operation and consequences of exchange rate regimes in an era of increasing international interdependence. The exchange rate is sometimes called the most important price in a highly globalized world. A country's choice of its exchange rate regime, between government-managed fixed rates and market-determined floating rates has significant implications for monetary policy, trade, and macroeconomic outcomes, and is the subject of both academic and policy debate. In this book, two leading economists examine the operation and consequences of exchange rate regimes in an era of increasing international interdependence. Michael Klein and Jay Shambaugh focus on the evolution of exchange rate regimes in the modern era, the period since 1973, which followed the Bretton Woods era of 1945-72 and the pre-World War I gold standard era. Klein and Shambaugh offer a comprehensive, integrated treatment of the characteristics of exchange rate regimes and their effects. The book draws on and synthesizes data from the recent wave of empirical research on this topic, and includes new findings that challenge preconceived notions.

''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""

According to a recent World Bank study, the Asian crisis led to a significant rise in poverty and sharp declines in middle-class living standards in the countries most affected. Real public spending on health and education fell, with poor households experiencing the largest declines in access to these services. The impact of decreased investment in human capital will have consequences for individuals and whole societies for years to come. Because these external shocks occurred very shortly after these countries had liberalized their capital markets, they have engendered a growing distrust of globalization in many parts of the world. We owe it to the people of the developing countries, as well as to ourselves, to consider how institutional or policy changes could moderate such setbacks in the future. For all these reasons, this conference seemed a good time to pause and consider the implications of recent events, institutional changes, and new research for the evolution of the international monetary system. Representing frontline countries and frontline institutions, many of the conference participants had struggled firsthand with the dilemmas posed by the recent crises. Thus, they brought unique perspectives on the issues and offered thoughtful observations and useful ideas that could improve the workings of the international monetary system. It is our hope that this publication of their views will stimulate further discussion, research and, more than partial implementation.

"A readable, balanced, and provocative view of the prospects for fruitful international economic cooperation. The papers are realistic: each discusses the difficulties involved in reaching cooperative solutions or procedures as well as the benefits of doing so. The discussion among the conference participants is lively, interesting, and insightful."--William H. Branson, Princeton University

Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.