International trade : theory and policy

Cover
Brief Contents
Contents
Preface
Chapter 1: Introduction
	What is International Economics About?
		The Gains from Trade
		The Pattern of Trade
		How Much Trade?
		Balance of Payments
		Exchange Rate Determination
		International Policy Coordination
		The International Capital Market
	International Economics: Trade and Money
Part 1: Exchange Rates and Open-Economy Macroeconomics
	Chapter 2: National Income Accounting and the Balance of Payments
		The National Income Accounts
			National Product and National Income
			Capital Depreciation and International Transfers
			Gross Domestic Product
		National Income Accounting for an Open Economy
			Consumption
			Investment
			Government Purchases
			The National Income Identity for an Open Economy
			An Imaginary Open Economy
			The Current Account and Foreign Indebtedness
			Saving and the Current Account
			Private and Government Saving
			Box: The Mystery of the Missing Deficit
		The Balance of Payments Accounts
			Examples of Paired Transactions
			The Fundamental Balance of Payments Identity
			The Current Account, Once Again
			The Capital Account
			The Financial Account
			Net Errors and Omissions
			Official Reserve Transactions
		Case Study: The Assets and Liabilities of the World's Biggest Debtor
		Summary
	Chapter 3: Exchange Rates and the Foreign Exchange Market: An Asset Approach
		Exchange Rates and International Transactions
			Domestic and Foreign Prices
			Exchange Rates and Relative Prices
		The Foreign Exchange Market
			The Actors
			Box: Exchange Rates, Auto Prices, and Currency Wars
			Characteristics of the Market
			Spot Rates and Forward Rates
			Foreign Exchange Swaps
			Futures and Options
		The Demand for Foreign Currency Assets
			Assets and Asset Returns
			Box: Nondeliverable Forward Exchange Trading in Asia
			Risk and Liquidity
			Interest Rates
			Exchange Rates and Asset Returns
			A Simple Rule
			Return, Risk, and Liquidity in the Foreign Exchange Market
		Equilibrium in the Foreign Exchange Market
			Interest Parity: The Basic Equilibrium Condition
			How Changes in the Current Exchange Rate Affect Expected Returns
			The Equilibrium Exchange Rate
		Interest Rates, Expectations, and Equilibrium
			The Effect of Changing Interest Rates on the Current Exchange Rate
			The Effect of Changing Expectations on the Current Exchange Rate
		Case Study: What Explains the Carry Trade?
		Summary
		Appendix: Forward Exchange Rates and Covered Interest Parity
	Chapter 4: Money, Interest Rates, and Exchange Rates
		Money Defined: A Brief Review
			Money as a Medium of Exchange
			Money as a Unit of Account
			Money as a Store of Value
			What Is Money?
			How the Money Supply Is Determined
		The Demand for Money by Individuals
			Expected Return
			Risk
			Liquidity
		Aggregate Money Demand
		The Equilibrium Interest Rate: The Interaction of Money Supply and Demand
			Equilibrium in the Money Market
			Interest Rates and the Money Supply
			Output and the Interest Rate
		The Money Supply and the Exchange Rate in the Short Run
			Linking Money, the Interest Rate, and the Exchange Rate
			U.S. Money Supply and the Dollar/Euro Exchange Rate
			Europe's Money Supply and the Dollar/Euro Exchange Rate
		Money, the Price Level, and the Exchange Rate in the Long Run
			Money and Money Prices
			The Long-Run Effects of Money Supply Changes
			Empirical Evidence on Money Supplies and Price Levels
			Money and the Exchange Rate in the Long Run
		Inflation and Exchange Rate Dynamics
			Short-Run Price Rigidity versus Long-Run Price Flexibility
			Box: Money Supply Growth and Hyperinflation in Zimbabwe
			Permanent Money Supply Changes and the Exchange Rate
			Exchange Rate Overshooting
		Case Study: Can Higher Inflation Lead to Currency Appreciation? The Implications of Inflation Targeting
		Summary
	Chapter 5: Price Levels and the Exchange Rate in the Long Run
		The Law of One Price
		Purchasing Power Parity
			The Relationship between PPP and the Law of One Price
			Absolute PPP and Relative PPP
		A Long-Run Exchange Rate Model Based on PPP
			The Fundamental Equation of the Monetary Approach
			Ongoing Inflation, Interest Parity, and PPP
			The Fisher Effect
		Empirical Evidence on PPP and the Law of One Price
		Explaining the Problems with PPP
			Trade Barriers and Nontradables
			Departures from Free Competition
			Differences in Consumption Patterns and Price Level Measurement
			Box: Some Meaty Evidence on the Law of One Price
			PPP in the Short Run and in the Long Run
			Case Study: Why Price Levels Are Lower in Poorer Countries
		Beyond Purchasing Power Parity: A General Model of Long-Run Exchange Rates
			The Real Exchange Rate
			Demand, Supply, and the Long-Run Real Exchange Rate
			Box: Sticky Prices and the Law of One Price: Evidence from Scandinavian Duty-Free Shops
			Nominal and Real Exchange Rates in Long-Run Equilibrium
		International Interest Rate Differences and the Real Exchange Rate
		Real Interest Parity
		Summary
		Appendix: The Fisher Effect, the Interest Rate, and the Exchange Rate under the Flexible-Price Monetary Approach
	Chapter 6: Output and the Exchange Rate in the Short Run
		Determinants of Aggregate Demand in an Open Economy
			Determinants of Consumption Demand
			Determinants of the Current Account
			How Real Exchange Rate Changes Affect the Current Account
			How Disposable Income Changes Affect the Current Account
		The Equation of Aggregate Demand
			The Real Exchange Rate and Aggregate Demand
			Real Income and Aggregate Demand
		How Output
is Determined in the Short Run
		Output Market Equilibrium in the Short Run: The DD Schedule
			Output, the Exchange Rate, and Output Market Equilibrium
			Deriving the DD Schedule
			Factors that Shift the DD Schedule
		Asset Market Equilibrium in the Short Run: The AA Schedule
			Output, the Exchange Rate, and Asset Market Equilibrium
			Deriving the AA Schedule
			Factors that Shift the AA Schedule
		Short-Run Equilibrium for an Open Economy: Putting the DD and AA Schedules Together
		Temporary Changes in Monetary and Fiscal Policy
			Monetary Policy
			Fiscal Policy
			Policies to Maintain Full Employment
		Inflation Bias and Other Problems of Policy Formulation
		Permanent Shifts in Monetary and Fiscal Policy
			A Permanent Increase in the Money Supply
			Adjustment to a Permanent Increase in the Money Supply
			A Permanent Fiscal Expansion
		Macroeconomic Policies and the Current Account
		Gradual Trade Flow Adjustment and Current Account Dynamics
			The J-Curve
			Exchange Rate Pass-Through and Inflation
			The Current Account, Wealth, and Exchange Rate Dynamics
		The Liquidity Trap
		Case Study: How Big is the Government Spending Multiplier?
		Summary
		Appendix 1: Intertemporal Trade and Consumption Demand
		Appendix 2: The Marshall-Lerner Condition and Empirical Estimates of Trade Elasticities
	Chapter 7: Fixed Exchange Rates and Foreign Exchange Intervention
		Why Study Fixed Exchange Rates?
		Central Bank Intervention and the Money Supply
			The Central Bank Balance Sheet and the Money Supply
			Foreign Exchange Intervention and the Money Supply
			Sterilization
			The Balance of Payments and the Money Supply
		How the Central Bank Fixes the Exchange Rate
			Foreign Exchange Market Equilibrium under a Fixed Exchange Rate
			Money Market Equilibrium under a Fixed Exchange Rate
			A Diagrammatic Analysis
		Stabilization Policies with a Fixed Exchange Rate
			Monetary Policy
			Fiscal Policy
			Changes in the Exchange Rate
			Adjustment to Fiscal Policy and Exchange Rate Changes
		Balance of Payments Crises and Capital Flight
		Managed Floating and Sterilized Intervention
			Perfect Asset Substitutability and the Ineffectiveness of Sterilized Intervention
			Case Study: Can Markets Attack a Strong Currency? The Case of Switzerland
			Foreign Exchange Market Equilibrium under Imperfect Asset Substitutability
			The Effects of Sterilized Intervention with Imperfect Asset Substitutability
			Evidence on the Effects of Sterilized Intervention
		Reserve Currencies in the World Monetary System
			The Mechanics of a Reserve Currency Standard
			The Asymmetric Position of the Reserve Center
		The Gold Standard
			The Mechanics of a Gold Standard
			Symmetric Monetary Adjustment under a Gold Standard
			Benefits and Drawbacks of the Gold Standard
			The Bimetallic Standard
			The Gold Exchange Standard
			Case Study: The Demand for International Reserves
			Summary
			Appendix 1: Equilibrium in the Foreign Exchange Market with Imperfect Asset Substitutability
				Demand
				Supply
				Equilibrium
			Appendix 2: The Timing of Balance of Payments Crises
Part 2: International Macroeconomic Policy
	Chapter 8: International Monetary Systems: An Historical Overview
		Macroeconomic Policy Goals in an Open Economy
			Internal Balance: Full Employment and Price Level Stability
			External Balance: The Optimal Level of the Current Account
			Box: Can a Country Borrow Forever? The Case of New Zealand
		Classifying Monetary Systems: The Open-Economy Monetary Trilemma
		International Macroeconomic Policy under the Gold Standard, 1870–1914
			Origins of the Gold Standard
			External Balance under the Gold Standard
			The Price-Specie-Flow Mechanism
			The Gold Standard "Rules of the Game": Myth and Reality
			Internal Balance under the Gold Standard
			Case Study: Gold Smuggling and the Birth of the UAE Dirham
		The Interwar Years, 1918–1939
			The Fleeting Return to Gold
			International Economic Disintegration
			Case Study: The International Gold Standard and the Great Depression
		The Bretton Woods System and the International Monetary Fund
			Goals and Structure of the IMF
			Convertibility and the Expansion of Private Financial Flows
			Speculative Capital Flows and Crises
		Analyzing Policy Options for Reaching Internal and External Balance
			Maintaining Internal Balance
			Maintaining External Balance
			Expenditure-Changing and Expenditure-Switching Policies
		The External Balance Problem of the United States under Bretton Woods
			Case Study: The End of Bretton Woods, Worldwide Inflation, and the Transition to Floating Rates
			The Mechanics of Imported Inflation
			Assessment
		The Case for Floating Exchange Rates
			Monetary Policy Autonomy
			Symmetry
			Exchange Rates as Automatic Stabilizers
			Exchange Rates and External Balance
			Case Study: The First Years of Floating Rates, 1973–1990
		Macroeconomic Interdependence under a Floating Rate
			Case Study: Transformation and Crisis in the World Economy
		What Has Been Learned Since 1973?
			Monetary Policy Autonomy
			Symmetry
			The Exchange Rate as an Automatic Stabilizer
			External Balance
			The Problem of Policy Coordination
		Are Fixed Exchange Rates Even an Option for Most Countries?
		Summary
		Appendix: International Policy Coordination Failures
	Chapter 9: Financial Globalization: Opportunity and Crisis
		The International Capital Market and the Gains from Trade
			Three Types of Gain from Trade
			Risk Aversion
			Portfolio Diversification as a Motive for International Asset Trade
			The Menu of International Assets: Debt versus Equity
		International Banking and the International Capital Market
			The Structure of the International Capital Market
			Offshore Banking and Offshore Currency Trading
			The Shadow Banking System
		Banking and Financial Fragility
			The Problem of Bank Failure
			Government Safeguards against Financial Instability
			Moral Hazard and the Problem of "Too Big to Fail"
			Box: The Simple Algebra of Moral Hazard
		The Challenge of Regulating International Banking
			The Financial Trilemma
			International Regulatory Cooperation through 2007
			Case Study: The Global Financial Crisis of 2007–2009
			Box: Foreign Exchange Instability and Central Bank Swap Lines
			International Regulatory Initiatives after the Global Financial Crisis
		How Well Have International Financial Markets Allocated Capital and Risk?
			The Extent of International Portfolio Diversification
			The Extent of Intertemporal Trade
			Onshore-Offshore Interest Differentials
			The Efficiency of the Foreign Exchange Market
		Summary
	Chapter 10: Optimum Currency Areas and the Euro
		How the European Single Currency Evolved
			What
has Driven European Monetary Cooperation?
			The European Monetary System, 1979–1998
			German Monetary Dominance and the Credibility Theory of the EMS
			Market Integration Initiatives
			European Economic and Monetary Union
		The Euro and Economic Policy in the Euro Zone
			The Maastricht Convergence Criteria and the Stability and Growth Pact
			The European Central Bank and the Eurosystem
			The Revised Exchange Rate Mechanism
		The Theory of Optimum Currency Areas
			Economic Integration and the Benefits of a Fixed Exchange Rate Area: The GG Schedule
			Economic Integration and the Costs of a Fixed Exchange Rate Area: The LL Schedule
			The Decision to Join a Currency Area: Putting the GG and LL Schedules Together
			What is an Optimum Currency Area?
			Other Important Considerations
			Case Study: Is Europe an Optimum Currency Area?
		The Euro Crisis and the Future of EMU
			Origins of the Crisis
			Self-Fulfilling Government Default and the "Doom Loop"
			A Broader Crisis and Policy Responses
			ECB Outright Monetary Transactions
			The Future of EMU
		Summary
	Chapter 11: Developing Countries: Growth, Crisis, and Reform
		Income, Wealth, and Growth in the World Economy
			The Gap between Rich and Poor
			Has the World Income Gap Narrowed Over Time?
		Structural Features of Developing Countries
		Developing-Country Borrowing and Debt
			The Economics of Financial Inflows to Developing Countries
			The Problem of Default
			Alternative Forms of Financial Inflow
			The Problem of "Original Sin"
			The Debt Crisis of the 1980s
			Reforms, Capital Inflows, and the Return of Crisis
		East Asia: Success and Crisis
			The East Asian Economic Miracle
			Box: Why have Developing Countries Accumulated Such High Levels of International Reserves?
			Asian Weaknesses
			Box: What did East Asia Do Right?
			The Asian Financial Crisis
		Lessons of Developing-Country Crises
		Reforming the World's Financial "Architecture"
			Capital Mobility and the Trilemma of the Exchange Rate Regime
			"Prophylactic" Measures
			Coping with Crisis
			Case Study: China's Pegged Currency
		Understanding Global Capital Flows and the Global Distribution of Income: Is Geography Destiny?
			Box: Capital Paradoxes
		Summary
Mathematical Postscripts
	Postscript to Chapter 9: Risk Aversion and International Portfolio Diversification
		An Analytical Derivation of the Optimal Portfolio
		A Diagrammatic Derivation of the Optimal Portfolio
		The Effects of Changing Rates of Return
Index
Credits