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Taiwan was the first developing country to adopt an export‐oriented trade strategy after World War II. The factors usually associated with big shifts in policy—a macroeconomic crisis, a change in political power or institutions, lobbying by export interests, pressure from international financial institutions—were not present; it was ideas that were key. In 1954, economist S. C. Tsiang proposed that Taiwan boost export earnings rather than squeeze import spending to deal with its chronic shortage of foreign exchange. He recommended a currency devaluation to establish a realistic exchange rate and a market‐based system of foreign exchange allocation to end the inefficient rationing by the government. Four years later, a policymaker, K. Y. Yin, fought for the adoption of Tsiang's proposal, helping to clear the way for Taiwan's phenomenal growth in trade. [ABSTRACT FROM AUTHOR]

This paper asks whether the policy of benign neglect that the United States (U.S.) government adopted in the 1970s toward foreign purchases of U.S. dollar securities and the price of the U.S. dollar has advanced the ability of the U.S. to achieve its employment, price level, growth, and national security objectives. The dominant objective of some members of the U.S. team at Camp David in August 1971 was to secure an increase in the U.S. trade surplus. One choice for the U.S. government was to increase the U.S. dollar price of gold to $100 or $140 an ounce, much like the increase to $35 an ounce in 1934. The competing choice was to close the gold window. Some members of this team believed that this choice would facilitate the move to a flexible exchange rate arrangement and that the U.S. trade surplus would increase as the price of the U.S. dollar fell. The price of the U.S. dollar has increased since the late 1970s and the purchase of U.S. dollar securities by foreign central banks, sovereign wealth funds, mutual funds, insurance companies, pension funds, and families have meant that U.S. exports of securities have displaced U.S. exports of goods. The U.S. trade surplus morphed into a U.S. trade deficit in the early 1980s, which has increased secularly, and now is nearly four percent of U.S. GDP. U.S manufacturing employment declined from 20 million in 1980 to 13 million in 2020. The increasingly large U.S. trade deficit led to the loss of three million U.S. manufacturing jobs (ball park estimate). Hundreds of factory towns in the Northeast and Midwest were decimated by the increase in the U.S. trade deficit. [ABSTRACT FROM AUTHOR]

This paper uses principal components analysis to describe the evolution of current account imbalances in a sample of 18 Organization for Economic Cooperation and Development countries from 1950 to 2020. The analysis shows, using only statistical methods, how two groups of countries formed in the 1980s. There is the current account surplus group including countries in Northern Europe, Japan and Switzerland and then the deficit group including the United States, the United Kingdom, Australia and several countries in Southern Europe. The divergence cannot be attributed to divergence in fiscal and monetary policy. Instead, there is some support for the thesis of Robert Aliber set out in another paper in this issue that capital flows between countries affect exchange rates, asset prices and the current account. The paper builds on two earlier papers in this journal by the same author, one showing how countries that have experienced a financial crisis tend to subsequently develop current account surpluses and the other showing how surpluses and deficits caused by capital flows affect the domestic real economy. [ABSTRACT FROM AUTHOR]

Developing countries in general need flexibility and a sufficient number of instruments to prevent excessive volatility. Evidence does not support the orthodox belief that, with free floating, international financial markets will perform that role by smoothly adjusting exchange rates to their "equilibrium" level. In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment. The experience with hard pegs has not been satisfactory either: the exchange rate could not be corrected in cases of external shocks or misalignment. Given this experience, "intermediate" regimes are preferable when there is instability in international financial markets. [ABSTRACT FROM AUTHOR]

This paper revisits the claim that flexible exchange rates facilitate external adjustment. While previous studies have used exchange rate regime as a proxy for exchange rate flexibility, in this study there is evidence of ARCH effects in exchange rate, and thus GARCH models are employed to estimate volatility. A dynamic panel data model is then specified, and the Arellano-Bond estimator and the Blundell-Bond estimator are employed to estimate the effect of exchange rate flexibility on the speed of adjustment of current account in a panel of 28 emerging and developing economies. There is robust evidence that flexible exchange rates indeed facilitate smoother adjustment of current account imbalances. [ABSTRACT FROM AUTHOR]

Since the end of the Second World War the world economy has, apart from brief interludes of price stability, been in the grip of continuous inflation. No country seems to have managed to escape this world inflation entirely, although a few have made the very greatest efforts to do so. The present article considers why these efforts were in vain and if there really is no defence against “imported” world inflation. The author analyses the four types of policy for avoiding inflation - restrictive monetary and fiscal policy, export of capital, periodic changes in exchange parities and flexible exchange rates. The analysis suggests that the first two are least recommendable in the face of chronic balance of payments surpluses because they do not eradicate the surplus itself and can be sustained for only a relatively short period of time. The latter two do eliminate the external surplus, however, in the face of continuous world inflation, periodic revaluation does so only temporarily while flexible rates represent a permanent solution. The author concludes that world inflation can be checked only if there is an international monetary order which keeps reserves so scarce that no country feels able to allow inflation to proceed. JEL: E31, E42, E52, E62

The present work provides a theoretical framework of reference in order to interpret the fluctuations in Italy’s balance of payments in the post-war period. Such a framework can help to explain the flows of international reserves, even under flexible exchange rates, and may easily be adapted to the analysis of the exchange rate itself. The author first develops a "medium to long term" theoretical model for a "small country", before deriving the equation for the balance of payments to be estimated with annual data. The results of the empirical estimates, which cover the period 1051-1973, are then presented. JEL: E42, F21, F32

Since the end of the Second World War the world economy has, apart from brief interludes of price stability, been in the grip of continuous inflation. No country seems to have managed to escape this world inflation entirely, although a few have made the very greatest efforts to do so. The present article considers why these efforts were in vain and if there really is no defence against “imported” world inflation. The author analyses the four types of policy for avoiding inflation - restrictive monetary and fiscal policy, export of capital, periodic changes in exchange parities and flexible exchange rates. The analysis suggests that the first two are least recommendable in the face of chronic balance of payments surpluses because they do not eradicate the surplus itself and can be sustained for only a relatively short period of time. The latter two do eliminate the external surplus, however, in the face of continuous world inflation, periodic revaluation does so only temporarily while flexible rates represent a permanent solution. The author concludes that world inflation can be checked only if there is an international monetary order which keeps reserves so scarce that no country feels able to allow inflation to proceed. JEL: E31, E42, E52, E62

Since the change in the exchange rate regime came about as a result of breakdown and not reform, there are no rules on how to operate the new flexible exchange rate regime and no common philosophy on which to base them. For this reason, the recent agreement reached in Jamaica and now embodied in an amendment to the Articles of Agreement of the International Monetary Fund, is all the more important. The present article analyses and evaluates the package of agreements, and especially their significance for international monetary relations during the next few years. Accordingly, each of the main points of the agreements reached is described. The author argues that the Jamaica agreement provides an important starting point for further progress in the field of exchange rates. JEL: E42, F33

In this paper, we investigate by means of analytical method and numerical simulations the properties of three-dimensional business cycle model, in which foreign exchange rate is flexible and a parameter is fluctuated by noise. The model is a discrete time version of Asada (Journal of Economics, 62, 239–269,1995)'s continuous time open economy model without noise. We show (1) noise may suppress the burst of flexible foreign exchange rate when its behavior begins to burst as a bifurcation parameter (adjustment speed of the goods market) is increased, (2) the windows of cycles can be broken by noise, and (3) noise may reveal the hidden structures.

A few policy recommendations become apparent to avoid depreciation relative to other regional currencies when examining intra-Asian exchange rates during the most recent credit crisis. One, avoid large fiscal deficits. Two, avoid high inflation and current account deficits in order to maintain low interest rates to avoid depreciation from the unwinding of the carry trade. Third, build large official reserves or, more importantly, build large reserves of foreign currency assets. Additional results show an unexplained depreciation of the Australian dollar and the Indian rupee and appreciation of the Thai baht as the TED spread widened and credit crisis worsened. [ABSTRACT FROM AUTHOR]

Abstract: The optimal exchange rate regime choice for a small open economy is investigated in a stochastic general equilibrium model. Even if the home money supply fluctuates heavily, pegging the exchange rate to a country with a less volatile monetary policy may not be welfare improving if prices are sticky in producer''s currency. Owing to a reduction in the risk premium incorporated in prices output and thus work effort may rise so much that the positive welfare effect of an increase in overall consumption is overcompensated. This effect is stronger the closer the substitutability between home and foreign goods and the larger the tradable sector is. The model further implies that the policymaker can almost always reap a welfare gain by choosing an exchange rate peg if prices are set in the consumer''s currency. [Copyright &y& Elsevier]

This paper shows that exchange rate volatility promotes agglomeration of economic activity. Under flexible rates, firms prefer to locate in large countries, where they would enjoy lower variability of sales, thus reinforcing concentration of firms in such locations. Empirical evidence on OECD countries demonstrates that for small (large) countries or currency areas, exchange rate volatility has a long-run negative (positive) effect on net inward FDI flows. Two implications arise: creating a currency area fosters agglomeration towards the area and dispersion within the area. [ABSTRACT FROM AUTHOR]

This paper constructs a simple general equilibrium two-country model with flexible exchange rates, specialization in production, and oligopolistic firms. The model is simulated in order to investigate how returns to scale and imperfect competition influence the process through which the aggregate demand and trade policy effects are transmitted internationally. The possibility that aggregate demand and trade policies enacted by one country can have 'beggar my neighbor' effects on the other country cannot be excluded. [ABSTRACT FROM AUTHOR]

This paper explores the potential of firms to restrict industry outputs (market power) in oligopolistically organized markets where domestic firms compete with foreign ones. Within a stochastic price-setting supergame framework, market power is shown to be lower in general with flexible exchange rates for the following reasons, (i) The conditions that the fully collusive outcome -- oligopolists maximizing joint profits -- is sustainable in equilibrium become stronger if the exchange rate fluctuates, provided that fluctuations are sufficiently small, (ii) Even if full collusion can be sustained, industry outputs will be higher on the average with flexible than with fixed exchange rates. [ABSTRACT FROM AUTHOR]