IDEAS home Printed from
   My bibliography  Save this paper

The New Nexus among Trade, Industrial and Exchange-Rate Policies


  • J. David Richardson


This paper explores the new interconnections between real and financial policies that affect international transactions. Among other conclusions are the following. (1) In a world of spatially mobile capital and reasonably accurate expectations, trends in international competitiveness and financial asset yields are tightly linked. Volatility in one causes volatility in the other. Policies that affect one affect the other.Financial policy influences real exchange rates and alters the pressures for trade and industrial policy. Trade and industrial policy causes overshooting of financial variables, and alters the pressures for financial policy.(2) Any failureto make real and financial policy stable, credible,systematic, and predictable generates volatile and costly signals to reallocate resources. The problems with this are unpredictability more than inefficiency and resource disorder more than resource mis-order.(3) Stable, credible, systematic, and transparent exchange-rate policy can allay resource disorder by limiting deviations around economic trends.Economic trends can be enhanced in the presence of well-defined market imperfections by stable, credible, systematic, and transparent trade and industrial policies. (4) To reduce the likelihood of global resource disorder, real and financial policy options may involve retreating from multilateralism and from unrealistically binding rules. Sensible and timely alternatives seem to be aggressive bilateral peacemaking, non-inclusive coalition formation, and the formulation of credible "conventions" to govern government policy, both real and financial.

Suggested Citation

  • J. David Richardson, 1983. "The New Nexus among Trade, Industrial and Exchange-Rate Policies," NBER Working Papers 1099, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1099
    Note: ITI IFM

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Wilson, Charles A, 1979. "Anticipated Shocks and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 639-647, June.
    2. Hooper, Peter & Kohlhagen, Steven W., 1978. "The effect of exchange rate uncertainty on the prices and volume of international trade," Journal of International Economics, Elsevier, vol. 8(4), pages 483-511, November.
    3. Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-272, May.
    4. Harry G. Johnson, 1966. "A Model of Protection and the Exchange Rate," Review of Economic Studies, Oxford University Press, vol. 33(2), pages 159-163.
    5. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    6. Richardson, J. David, 1982. "Four observations on modern international commercial policy under floating exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 187-220, January.
    7. Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 280-304.
    8. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    9. Susan Schadler, 1977. "Sources of Exchange Rate Variability: Theory and Empirical Evidence (Sources des variations de taux de change: analyse de la théorie et observation empirique) (Fuentes de variabilidad del tipo de cam," IMF Staff Papers, Palgrave Macmillan, vol. 24(2), pages 253-296, July.
    10. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    11. Eichengreen, Barry J., 1983. "Effective protection and exchange-rate determination," Journal of International Money and Finance, Elsevier, vol. 2(1), pages 1-15, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Paul R. Flacco & Leroy O. Laney & Marie C. Thursby & Thomas D. Willett, 1984. "Exchange Rates And Trade Policy," Contemporary Economic Policy, Western Economic Association International, vol. 2(4), pages 6-18, January.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1099. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.