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Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics

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  • Maurice Obstfeld

    (University of California, Berkeley)

Abstract

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 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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File URL: http://128.118.178.162/eps/if/papers/0303/0303004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0303004.

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Length: 37 pages
Date of creation: 25 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0303004

Note: 37 pages, Acrobat .pdf
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Web page: http://128.118.178.162

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