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Two Cases for Sand in the Wheels of International Finance

  • Eichengreen, Barry
  • Tobin, James
  • Wyplosz, Charles

The incompatibility of pegged exchange rates, international capital mobility and national monetary autonomy is a basic postulate of open economy macroeconomies. In the present environment of high capital mobility and political uncertainty, even the possibility that governments may utilize their policy autonomy can defeat efforts to peg the exchange rate. This leaves two possibilities. One is to fix the exchange rate irrevocably through monetary unification. The other is to live with floating rates. Either way, a case can be made for "throwing sand in the wheels" of international finance. Where monetary unification is not an option, this is a may to make distinct national currencies tolerable and international money and capital markets compatible with modest national autonomy in monetary and macroeconomic policy. For. EU counties striving to create a monetary union, it is the only politically and economically feasible way of completing the transition to Stage III of the Maastricht process.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 105 (1995)
Issue (Month): 428 (January)
Pages: 162-72

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Handle: RePEc:ecj:econjl:v:105:y:1995:i:428:p:162-72
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  1. Dixit, Avinash, 1991. "Irreversible Investment with Price Ceilings," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 541-57, June.
  2. Jeff Frankel, Steve Phillips, and Menzie Chinn., 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers C92-005, University of California at Berkeley.
  3. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  4. Woo, Wing T., 1985. "The monetary approach to exchange rate determination under rational expectations: The dollar-deutschmark rate," Journal of International Economics, Elsevier, vol. 18(1-2), pages 1-16, February.
  5. Obstfeld, Maurice & Rogoff, Kenneth, 1994. "The Intertemporal Approach to the Current Account," Center for International and Development Economics Research (CIDER) Working Papers 233395, University of California-Berkeley, Department of Economics.
  6. Tamim Bayoumi and Barry Eichengreen., 1993. "One Money or Many? On Analyzing the Prospects for Monetary Unification in Various Parts of the World," Center for International and Development Economics Research (CIDER) Working Papers C93-030, University of California at Berkeley.
  7. Bayoumi, Tamim & Eichengreen, Barry, 1994. "The Stability of the Gold Standard and the Evolution of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers 233389, University of California-Berkeley, Department of Economics.
  8. Svensson, L.E.O., 1993. "Fixed Exchange Rates As a Means to Price Stability: What Have we Learned?," Papers 553, Stockholm - International Economic Studies.
  9. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
  10. Ernesto H. Stein & Jorge M. Streb, 1995. "Political Stabilization Cycles in High Inflation Economies," IDB Publications (Working Papers) 6857, Inter-American Development Bank.
  11. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Working Papers 3684, National Bureau of Economic Research, Inc.
  12. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  13. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
  14. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  15. Eichengreen, Barry & Simmons, Beth, 1993. "International Economics and Domestic Politics: Notes on the 1920s," Center for International and Development Economics Research (CIDER) Working Papers 233212, University of California-Berkeley, Department of Economics.
  16. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
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