Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics
AbstractThe 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 international pricing of goods, notably, models of pricing to market and destination-currency pricing of exports. Some of the resulting models imply that exchange-rate changes lack international expenditure-switching effects, and they thus appear to call for a radical rethinking of the role of exchange rates in international adjustment. This paper argues that the recent resurgence of exchange-rate pessimism stems from oversimplified modeling strategies rather than from evidence. Like earlier episodes starting with the extreme "elasticity pessimism" of the early postwar era, it is based on a misinterpretation of the empirical record.
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Bibliographic InfoPaper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt5t38s42v.
Date of creation: 02 Jul 2002
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exchange rate policy; international adjustment; expenditure-switching effects; elasticity pessimism; international competitiveness;
Other versions of this item:
- Obstfeld, Maurice, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open- Economy Macroeconomics," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 23-46, December.
- Obstfeld, Maurice, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," CEPR Discussion Papers 3533, C.E.P.R. Discussion Papers.
- Maurice Obstfeld, 2003. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," International Finance 0303004, EconWPA.
- Maurice Obstfeld, 2002. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," NBER Working Papers 9118, National Bureau of Economic Research, Inc.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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