CH19 Macroeconomic Policy and Coordination under Floating Exchange Rates.ppt

anizationTheCaseforFloatingExchangeRatesTheCaseAgainstFloatingExchangeRatesMacroeconomicInterdependenceUnderaFloatingRateWhatHasBeenLearnedSince1973?AreFixedExchangeRatesEvenandOptionforMostCountries?DirectionsforReformSummaryAppendix:InternationalPolicyCoordinationFailures2IntroductionThefloatingexchangeratesystem,inplacesince1973,-1980s,?Whatdirectionshouldreformofthecurrentsystemtake?FloatingExchangeRatesTherearethreeargumentsinfavoroffloatingexchangerates:aryPolicyAutonomyFloatingexchangerates:arycontroltocentralbanksAlloweachcountrytochooseitsowndesiredlong-runinflationrateTheCaseforFloatingExchangeRates5SymmetryFloatingexchangeratesremovetwomainasymmetriesoftheBrettonWoodssystemandallow:FloatingExchangeRates6ExchangeRatesasAutomaticStabilizersFloatingexchangeratesquicklyeliminatethe“fundamentaldisequilibriums”-1showsthatatemporaryfallinacountry’sexportdemandreducesthatcountry’FloatingExchangeRates7AA1DD1Figure19-1:EffectsofaFallinExportDemandAA2DD2AA1DD2DD1E22Y2Y2Output,YExchangerate,E(a)FloatingexchangerateOutput,YExchangerate,E(b)FixedexchangerateY1E11Y1E11Y33TheCaseforFloatingExchangeRates8TheCaseAgainstFloatingExchangeRatesTherearefiveargumentsagainstfloatingrates:(.,theGermanhyperinflationofthe1920s).Thepro-floaters’responsew