清华大学：《国际经济学》（英文版） Chapter 19 Macroeconomic Policy and Coordination under Floating Exchange Rates

Chapter 19 Macroeconomic Policy and Coordination under Floating Exchange Rates

Chapter 19 ▪ Macroeconomic Policy and Coordination under Floating Exchange Rates

Chapter organization The Case for Floating Exchange rates The Case Against Floating Exchange rates Macroeconomic Interdependence Under a Floating Rate What Has been Learned since 1973? Are Fixed Exchange Rates Even and Option for most Countries? Directions for reform Summary Appendix: International Policy Coordination Failures Copyright C 2003 Pearson Education, Inc Slide 19-2

Copyright © 2003 Pearson Education, Inc. Slide 19-2 Chapter Organization ▪ The Case for Floating Exchange Rates ▪ The Case Against Floating Exchange Rates ▪ Macroeconomic Interdependence Under a Floating Rate ▪ What Has Been Learned Since 1973? ▪ Are Fixed Exchange Rates Even and Option for Most Countries? ▪ Directions for Reform ▪ Summary ▪ Appendix: International Policy Coordination Failures

Introduction The floating exchange rate system, in place since 1973, was not well planned before its inception By the mid-1980s, economists and policymakers had become more skeptical about the benefits of an international monetary system based on floating rates a Why has the performance of floating rates been so disappointing? What direction should reform of the current system ake? This chapter compares the macroeconomic policy problems of different exchange rate regimes Copyright C 2003 Pearson Education, Inc Slide 19-3

Copyright © 2003 Pearson Education, Inc. Slide 19-3 Introduction ▪ The floating exchange rate system, in place since 1973, was not well planned before its inception. ▪ By the mid-1980s, economists and policymakers had become more skeptical about the benefits of an international monetary system based on floating rates. ▪ Why has the performance of floating rates been so disappointing? ▪ What direction should reform of the current system take? ▪ This chapter compares the macroeconomic policy problems of different exchange rate regimes

The Case for Floating Exchange rates There are three arguments in favor of floating exchange rates Monetary policy autonomy Symmetry Exchange rates as automatic stabilizers Copyright C 2003 Pearson Education, Inc Slide 19-4

Copyright © 2003 Pearson Education, Inc. Slide 19-4 The Case for Floating Exchange Rates ▪ There are three arguments in favor of floating exchange rates: • Monetary policy autonomy • Symmetry • Exchange rates as automatic stabilizers

The Case for Floating Exchange rates Monetary Policy autonomy Floating exchange rates Restore monetary control to central banks Allow each country to choose its own desired long-run inflation rate Copyright C 2003 Pearson Education, Inc Slide 19-5

Copyright © 2003 Pearson Education, Inc. Slide 19-5 ▪ Monetary Policy Autonomy • Floating exchange rates: – Restore monetary control to central banks – Allow each country to choose its own desired long-run inflation rate The Case for Floating Exchange Rates

The Case for Floating Exchange rates Symmetry Floating exchange rates remove two main asymmetries of the Bretton Woods system and allow Central banks abroad to be able to determine their own domestic money supplies The U.S. to have the same opportunity as other countries to influence its exchange rate against foreign currencies Copyright C 2003 Pearson Education, Inc Slide 19-6

Copyright © 2003 Pearson Education, Inc. Slide 19-6 ▪ Symmetry • Floating exchange rates remove two main asymmetries of the Bretton Woods system and allow: – Central banks abroad to be able to determine their own domestic money supplies – The U.S. to have the same opportunity as other countries to influence its exchange rate against foreign currencies The Case for Floating Exchange Rates

The Case for Floating Exchange rates Exchange Rates as automatic Stabilizers Floating exchange rates quickly eliminate the fundamental disequilibriums" that had led to parity changes and speculative attacks under fixed rates Figure 19-1 shows that a temporary fall in a country's export demand reduces that country's output more under a fixed rate than a floating rate Copyright C 2003 Pearson Education, Inc Slide 19-7

Copyright © 2003 Pearson Education, Inc. Slide 19-7 ▪ Exchange Rates as Automatic Stabilizers • Floating exchange rates quickly eliminate the “fundamental disequilibriums” that had led to parity changes and speculative attacks under fixed rates. – Figure 19-1 shows that a temporary fall in a country’s export demand reduces that country’s output more under a fixed rate than a floating rate. The Case for Floating Exchange Rates

The Case for Floating Exchange rates Figure 19-1: Effects of a Fall in Export Demand Exchange rate, E DD2 DD (a Floating exchange rate AA1 Output,Y Exchange rate, E DD DD1 (b )Fixed exchange rate AA AA2 Copyright C 2003 Pearson Education, Inc Output, y Slide 19-8

Copyright © 2003 Pearson Education, Inc. Slide 19-8 AA1 DD1 Figure 19-1: Effects of a Fall in Export Demand AA2 DD2 AA1 DD2 DD1 E2 2 Y2 Y2 Output, Y Exchange rate, E (a) Floating exchange rate Output, Y Exchange rate, E (b) Fixed exchange rate Y1 E1 1 Y1 E1 1 Y3 3 The Case for Floating Exchange Rates

The Case against Floating Exchange rates There are five arguments against floating rates Discipline Destabilizing speculation and money market disturbances Injury to international trade and investment Uncoordinated economic policies The illusion of greater autonomy Copyright C 2003 Pearson Education, Inc Slide 19-9

Copyright © 2003 Pearson Education, Inc. Slide 19-9 The Case Against Floating Exchange Rates ▪ There are five arguments against floating rates: • Discipline • Destabilizing speculation and money market disturbances • Injury to international trade and investment • Uncoordinated economic policies • The illusion of greater autonomy

The Case against Floating Exchange rates Discipl ne Floating exchange rates do not provide discipline for central banks Central banks might embark on inflationary policies(e.g the German hyperinflation of the 1920s) The pro-floaters' response was that a floating exchange rate would bottle up inflationary disturbances within the country whose government was misbehaving Copyright C 2003 Pearson Education, Inc Slide 19-10

Copyright © 2003 Pearson Education, Inc. Slide 19-10 ▪ Discipline • Floating exchange rates do not provide discipline for central banks. – Central banks might embark on inflationary policies (e.g., the German hyperinflation of the 1920s). • The pro-floaters’ response was that a floating exchange rate would bottle up inflationary disturbances within the country whose government was misbehaving. The Case Against Floating Exchange Rates