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1977 | Buch

Flexible Exchange Rates and Stabilization Policy

herausgegeben von: Jan Herin, Assar Lindbeck, Johan Myhrman

Verlag: Palgrave Macmillan UK

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Inhaltsverzeichnis

Frontmatter
Approaches To Exchange Rate Analysis—An Introduction
Abstract
It is the fate of social scientists to shoot at moving targets. At about the time when macro economists started to understand the operations of a world economy with fixed exchange rates, or adjustable pegs, the system was replaced with a regime with considerable exchange rate flexibility, occasionally even floating rates. As a consequence, prevailing “embryos” to a theory of the balance of payments for a regime of flexible rates—as formulated by Milton Friedman, James Meade, Egon Sohmen and others—were suddenly put into empirical test and found to be in need of some modification. The same can be said about theoretical suggestions concerning the performance of stabilization policy under alternative exchange rate regimes, as formulated inter alia by Marcus Fleming and Robert Mundell.
Assar Lindbeck
Monetary Theory and Policy in an Open Economy
Abstract
This paper identifies several respects in which analysis of the macro-economics of small open economies has to be modified beyond its development a decade ago, with special reference to the effectiveness of monetary and fiscal policies under alternative exchange rate regimes. Capital movements must be viewed in the context of portfolio equilibrium rather than as continuous flows. Room must be made in monetarist formulations for holdings of foreign money. The impact of changes in exchange rates on nominal factor prices should be taken into account. And the effect of the exchange rate regime on the magnitude of the stabilization task must figure in any evaluation of alternative exchange rate regimes. Suggestions are made along each of these lines.
Richard N. Cooper
Comment on R. N. Cooper, “Monetary Theory and Policy in an Open Economy”
Abstract
My impression is that Richard Cooper has given a very clear and good survey of questions concerning the effectiveness of various instruments of stabilization policy and the frequency and amplitudes of disturbances to macroeconomic stability in national economies under alternative exchange rate regimes. However, it might be argued that the paper raises more problems than it solves.
Per Meinich
Comment on R. N. Cooper, “Monetary Theory and Policy in an Open Economy”
Abstract
Since Professor Meinich has given us such a good summary of Dick Cooper’s paper, I will confine myself to making several points that either were omitted in the paper or that I think require some further discussion and clarification. Let me say in the beginning that the paper is a very useful introduction to one of the basic problems with which this Conference is dealing: the theoretical analysis of macro-economic behavior under flexible exchange rates. My critical remarks are intended mainly to sharpen Cooper’s discussion of the analytical questions.
Stanley W. Black
Experiences of Flexible Exchange Rates in Earlier Periods: Theories, Evidence and a New View
Abstract
Flexible exchange rates in earlier periods have usually meant that one or more countries left a metallic standard for some time. Three episodes dominate the historical material in this article: Sweden in the 18th century, England in the early 19th century and the period during and immediately after World War I. In all three cases there was a serious economic debate about the causes of the fluctuations in exchange rates. Two main views on this issue can be distinguished. One is that the fluctuations were caused by exogenous shifts in different items of the balance of payments. The other view attributes this role to the money supply. It is shown that theoretically both are possible, but that changes in the money supply probably predominate. This conclusion seems to be consistent with the empirical evidence.
Johan Myhrman
Comment on J. Myhrman, “Experiences of Flexible Exchange Rates in Earlier Periods: Theories, Evidence and a New View”
Abstract
Johan Myhrman’s excellent paper leaves me with little to say. I learned a great deal from reading it and, moreover, enjoyed myself in the process. Though ostensibly mainly a survey paper, the way in which the history of economic ideas, contemporary economic theory, and historical evidence are brought together under the discipline of an explicitly stated methodology ensures that this essay significantly advances the branch of knowledge with which it deals.
David Laidler
A Monetary Approach To The Exchange Rate: Doctrinal Aspects And Empirical Evidence
Abstract
This paper deals with the determinants of the exchange rate and develops a monetary view (or more generally, an asset view) of exchange rate determination. The first part traces some of the doctrinal origins of approaches to the analysis of equilibrium exchange rates. The second part examines some of the empirical hypotheses of the monetary approach as well as some features of the efficiency of the foreign exchange markets. Special emphasis is given to the role of expectations in exchange rate determination and a direct observable measure of expectations is proposed. The direct measure of expectations builds on the information that is contained in data from the forward market for foreign exchange. The empirical results are shown to be consistent with the hypotheses of the monetary approach.
Jacob A. Frenkel
Comment on J. A. Frenkel, “A Monetary Approach To The Exchange Rate: Doctrinal Aspects and Empirical Evidence”
Abstract
As many papers in this conference, Frenkel’s deals with the determinants of the exchange rate and uses the analytical framework provided by the monetarist approach to the balance of payments. The paper is divided in two main sections. In the first one Frenkel shows, with appropriate quotations, that the new monetarist approach has deep roots in economic doctrine. In the second part, Frenkel aims at an empirical verification of the monetarist approach, and in order to do so he chooses a period in which we may say without doubt that monetary disturbances dominated over real, and domestic over foreign ones. His case is the German hyperinflation during the years 1920–23.
Giorgio Basevi
The Exchange Rate, The Balance Of Payments and Monetary and Fiscal Policy Under A Regime of Controlled Floating
Abstract
This paper considers the extension of the fundamental principles of the monetary approach to balance of payments analysis to a regime of floating exchange rates, with active intervention by the authorities to control rate movements. It makes four main points. First, the exchange rate is the relative price of different national monies, rather than national outputs, and is determined primarily by the demands and supplies of stocks of different national monies. Second, exchange rates are strongly influenced by asset holder’s expectations of future exchange rates and these expectations are influenced by beliefs concerning the future course of monetary policy. Third, “real” factors, as well as monetary factors, are important in determining the behavior of exchange rates. Fourth, the problems of policy conflict which exist under a system of fixed rates are reduced, but not eliminated, under a regime of controlled floating. A brief appendix develops some of the implications of “rational expectations” for the theory of exchange rates.
Michael Mussa
Comment On M. Mussa, “The Exchange Rate, The Balance of Payments and Monetary and Fiscal Policy Under a Regime of Controlled Floating”
Abstract
“[The] central contention of … [Mussa’s] … paper [is] that the basic theoretical framework of the monetary approach to the balance of payments remains applicable” (see above, page 97) to the world of controlled floating which has existed since 1971. The paper itself is informal and the discussion general but, there is also a more formal appendix. This comment summarizes and evaluates both the paper and the appendix.
Michael Parkin
The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy
Abstract
This paper develops three perspectives on the determination of exchange rates and their interaction with macroeconomic equilibrium and aggregate policies. A long- run view characterizes exchange rate determination in terms of monetary and real factors where the real aspects include an explicit consideration of relative price structures. A short-run or “liquidity” view of the exchange rate emphasizes the role of asset market equilibrium and expectations. A policy view, finally, analyses the effectiveness of aggregate policies and points out that in the short-run nominal disturbances will tend to be transmitted internationally. The paper concludes with an analysis of dual exchange rate systems as a stabilizing policy in the presence of speculative disturbances.
Rudiger Dornbusch
Comment on R. Dornbusch, “The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy”
Abstract
The paper by Rudiger Dornbusch first sets out a theory of the long run determination of the exchange rate and then discusses a number of issues connected with the operation of flexible exchange rate regimes over a shorter period characterized by expectational errors. Since the paper is admirably lucid, there is little for the discussant to do beyond expressing minor reservations at certain points and emphasizing some aspects of the analysis.
Stanley Fischer
The Exchange Rate And The Balance of Payments In The Short Run and in The Long Run: A Monetary Approach
Abstract
This paper analyzes, by way of a dynamic model, the role of momentary asset equilibrium and expectations in the determination of the exchange rate in the short run, and the role of the process of asset accumulation in the determination of the time path from momentary to long-run equilibrium.
Pentti J. K. Kouri
Comment on P. J. K. Kouri, “The Exchange Rate and the Balance of Payments in The Short Run and in The Long Run: A Monetary Approach”
Abstract
The requirements of asset-market equilibrium play a crucial role in determining the exchange rate. Changes in relative asset supplies and in the terms at which the public is willing to hold them—and these terms depend crucially on expectations—are therefore to be focused on in any analysis of exchange- rate variations in both the short and long run.
Alexander K. Swoboda
The Firm Under Pegged and Floating Exchange Rates
Abstract
This article seeks to answer the question about the impact of floating exchange rates on international trade and investment by comparing the costs and risks encountered by traders under floating rates with those under pegged rates. Data indicate that transactions costs are five to ten times higher under floating rates, with the larger increases associated with the more volatile currencies. Exchange risk is measured under the two exchange rate systems by comparing the mean forecast errors between the forward rate and the spot rate at the maturity of the forward contracts and the standard deviations of these forecast errors; both mean and standard deviation have increased by a factor of five to ten. Finally price risk, which involves variations in the domestic price of tradeables as a result of changes in exchange rates, is shown to be substantially higher under the floating rate system.
Robert Z. Aliber
Comment on R. Z. Aliber, “The Firm Under Pegged And Floating Exchange Rates”
Abstract
In the introduction of his paper, Robert Aliber argues an a priori case that flexible exchange rate systems inhibit international trade. The body of the paper is then an attempt through theoretical constructions and empirical evidence to make this a priori case more precise in terms of the mechanisms that are at work. My main disappointment with the paper is that it failed to convince me beyond the intuitive notion that fluctuations in exchange rates do inhibit trade. To be clear, Aliber’s analysis does faithfully present much of what we know about the effect of risk on international trade, so that my unhappiness is as much with the general state of our knowledge as with the particulars of the paper.
Dwight M. Jaffee
Exchange-Rate Flexibility and Reserve Use
Abstract
This paper examines whether, as has usually been assumed, there is a trade-off between the degree of flexibility in exchange rates and the extent of reserve use. The first section of the paper constructs a measure of reserve use in order to examine changes in the extent of reserve use since the advent of generalized floating. It is found that reserve use initially tended to increase following the move to floating, and that, despite some subsequent decline, it has remained substantial. The second section constructs and partially solves a formal model designed to illuminate the determinants of reserve use. It is shown that there need not necessarily be a trade-off between exchange-rate flexibility and the extent of reserve use.
John Williamson
Comment on J. Williamson, “Exchange Rate Flexibility and Reserve Use”
Abstract
John Williamson’s paper investigates the trade-off between flexibility of exchange rates and the degree of intervention by authorities in exchange markets. The first part of the paper tries to measure the degree of use of official reserves before and after floating. The second part looks at the trade-off between variance in the exchange rate and variance of intervention in a stochastic theoretical model of the exchange market.
Stanley W. Black
World Inflation Under Flexible Exchange Rates
Abstract
Under flexible exchange rates, world inflation is the weighted average of the national inflation rates. This paper is concerned with two categories of arguments which emphasize the higher probability of a higher inflation bias in a system of flexible exchange rates. The first category refers to a country’s lower inflationary discipline when it has adopted a floating exchange rate and the second category of arguments concerns either price rigidities which become virulent qua the system of flexible exchange rates or some automatic world price level increases following the introduction of floating exchange rates. The paper leads to the conclusion that flexible exchange rates are neither inherently more inflationary nor inherently less inflationary than fixed exchange rates.
Emil-Maria Claassen
Comment on E.-M. Claassen, “World Inflation Under Flexible Exchange Rates”
Abstract
The paper by Professor Claassen examines within an analytic framework some of the arguments which have led to the conclusion that flexible exchange rates imply a higher rate of inflation, on the average, than fixed exchange rates. Three types of arguments are considered. The first looks at the effect of the introduction of flexible exchange rates on the conduct of monetary policy. The second takes up the so-called Mundell-Laffer proposition which relies on price rigidities and ratchet effects. Finally, Prof. Claassen analyses the likely effect of flexible exchange rates on rates of inflation via changes in the demand for international reserves.
Hans Genberg
Inflation and the Exchange Rate Regime
Abstract
Is a regime of fixed or of flexible rates more conducive to inflation? In a flexible rate regime the authorities of each country can choose whatever rate of inflation they wish. In the fixed rate system countries can depart from the world rate of inflation by running payments imbalances and will trade-off the costs of accommodating borrowing or lending against the benefits from getting closer to their desired inflation rates; inflation rates are then determined in a general equilibrium system where countries “trade” their surpluses and deficits. “Inflation-prone” countries are distinguished from the “inflation-shy”. Account is also taken of the special case of the reserve currency country.
W. Max Corden
Comment on W. M. Corden, ‘Inflation and the Exchange Rate Regime’
Abstract
Appropriately enough for a paper scheduled for the close of this seminar, Corden’s paper, like the one by Claassen, looks for the moral of the whole discussion: Will flexible rates result in higher inflation rates than those experienced in a fixed-exchange-rates world? Conventional wisdom of the sort expounded in elementary economics courses tolls us that the answer will be positive; by abolishing the penalty of currcnt-account deficits, reserve- depletion crises, etc., flexible rates remove a constraint on governmental behaviour. This implies that the balance-of-payments penalty constitutes the only effective constraint on the desire of governments to inflate. Howrcver, as Corden points out, given the existence of some internal constraints as well, the difference between the two regimes need not be so great. In particular, there being also a penalty overinvestment abroad for inflating too little under a fixed exchange rate, somo countries may actually inflate less under a flexible one.
Ephraim Kleiman
General Discussion: What Have We Learned? Where are the Fundamental Conflicts of Opinion?
Abstract
Stanley Black: Let me start by talking about what I see as the main things that we have learned. The papers of the last two days have brought us a considerable amount of understanding about (1) the relationship between stocks and flows, i.e. that the exchange rate is determined in the short run by equilibrium in markets for stocks of assets denominated in different currencies and in the long run by flow equilibrium in goods markets as indicated by purchasing power parity in the markets for traded goods. (2) Concerning the short-run equilibrium, we have learned about the relationship between, on the one hand, a monetary analysis of exchange rates focusing on the demands and supplies of different kinds of moneys, and on the other hand what has more generally been called an asset analysis of exchange rates focussing on the willingness to hold existing stocks of assets denominated in different currencies. The existing stocks of securities can only be changed (net) by flows of saving and investment, which take time. The existing amount of domestic holdings of foreign exchange can only be changed (net) by trade or service flows, which also take time. From the balance of payments we know that the current account plus the capital account—the items above the line—must equal the reserve flows below the line. The monetary approach observes the fact that under pure floating exchange rates, reserve movements and thus changes in the foreign component of the monetary base are zero.
Ephraim Kleiman
Metadaten
Titel
Flexible Exchange Rates and Stabilization Policy
herausgegeben von
Jan Herin
Assar Lindbeck
Johan Myhrman
Copyright-Jahr
1977
Verlag
Palgrave Macmillan UK
Electronic ISBN
978-1-349-03359-1
Print ISBN
978-1-349-03361-4
DOI
https://doi.org/10.1007/978-1-349-03359-1