The impact of exchange rate regimes on domestic and foreign investment in the presence of a short-run Phillips curve is investigated. Producers may diversify internationally to increase the flexibility of production, thereby diversifying country-specific productivity and monetary shocks....

Analyses of the political economy of exchange-rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and the stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more...

The paper presents a model of optimum currency areas using a general equilibrium approach with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across...

The effects of membership in the ERM are analyzed using vector autoregression techniques. The results indicate that while the ERM has had little effect on the nature of the shocks hitting the economies, it has had a significant effect on the response of member countries to these shocks, making...

Daily French and German interest rate changes since the Basle-Nyborg agreement of September 1987 are examined empirically. In particular, it is asked whether the shock associated with German unification altered the degree of leadership of German monetary policy in the exchange rate mechanism...

Structural vector autoregressions are used to analyze the relationship between real output and relative prices within the European Union and the United States. Relative price variability appears to be more important for adjustment within the European Union than in the United States, reflecting...

One reason why countries service their external debts is the fear that default might lead to shrinkage of international trade. If so, then creditors should systematically lend more to countries with which they share closer trade links. We develop a simple theoretical model to capture this...

Drawing on the neoclassical theory of international trade, this study investigates the limits of efficient diversification in low-income commodity exporting countries, and the fundamental importance of relative factor endowments for determining the commodity composition of international trade...