This paper presents a very simple model of the effects of flexible exchange rates in the transmission of business cycles. The starting point is the traditional "locomotive" effect, through exports and imports. Aside from this horizontal transmission, the intertemporal exchange rate model...

The 1970's witnessed the dramatic evolution of the international monetary system from a regime of pegged exchange rates into a regime of flexible rates. This paper surveys the key issues and lessons from the experience with floating rates during the1970's. The main orientation is empirical and...

We review ten aspects of how floating exchange rates have worked in practice, contrasted with ten characteristics that the system was supposed to have in theory. We conclude that the foreign exchange market is characterized by high transactions-volume, short-term horizons, and an absence of...

The New Open Economy Macroeconomics has allowed economists to tackle classical problems with new tools, while also generating new ideas and questions. In their attempts to make the new models capture empirical regularities, researchers have entertained a variety of assumptions about the...

This paper studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about countries with floating exchange rates where monetary policy controls inflation...

This paper examines the argument that the fixed exchange rate regime should be preferred to the flexible rate regime because the former allows risk sharing across countries while the latter does not. The analysis is performed in a two-country overlapping generations model, where markets are...

Two propositions are common in the international finance literature: (1) the real exchange rate is a random walk, (2) the real exchange rate time series properties essentially depend on the nominal exchange rate regime. The first proposition has been used in support of the claim that PPP cannot...

This paper integrates exchange-rate policy into a model of exchange- rate behavior, and examines the data econometrically to infer hypotheses about policy behavior in the 1970s. The model shows how unanticipated movements in money, the current account, and relative price levels will cause first...

The continuing depreciation of the dollar stands out as one of the big policy issues. It has started to impinge on U.S. monetary policy; it influences the chances for international commercial diplomacy, and it is enhancing the move toward European monetary integration. Above all it leaves most...

This paper contains an analysis of the role of international reserves under a regime of pegged exchange rates and under a regime of managed floating. It presents evidence on the stability of the demand for reserves during the periods 1963-72 and 1973-75. It is shown that the demand for reserves...