Chapter 19 Macroeconomic Policy and Coordination under Floating Exchange Rates
Chapter 19 ▪ Macroeconomic Policy and Coordination under Floating Exchange Rates
Chapter organization The Case for Floating Exchange rates The Case Against Floating Exchange rates Macroeconomic Interdependence Under a Floating Rate What Has been Learned since 1973? Are Fixed Exchange Rates Even and Option for most Countries? Directions for reform Summary Appendix: International Policy Coordination Failures Copyright C 2003 Pearson Education, Inc Slide 19-2
Copyright © 2003 Pearson Education, Inc. Slide 19-2 Chapter Organization ▪ The Case for Floating Exchange Rates ▪ The Case Against Floating Exchange Rates ▪ Macroeconomic Interdependence Under a Floating Rate ▪ What Has Been Learned Since 1973? ▪ Are Fixed Exchange Rates Even and Option for Most Countries? ▪ Directions for Reform ▪ Summary ▪ Appendix: International Policy Coordination Failures
Introduction The floating exchange rate system, in place since 1973, was not well planned before its inception By the mid-1980s, economists and policymakers had become more skeptical about the benefits of an international monetary system based on floating rates a Why has the performance of floating rates been so disappointing? What direction should reform of the current system ake? This chapter compares the macroeconomic policy problems of different exchange rate regimes Copyright C 2003 Pearson Education, Inc Slide 19-3
Copyright © 2003 Pearson Education, Inc. Slide 19-3 Introduction ▪ The floating exchange rate system, in place since 1973, was not well planned before its inception. ▪ By the mid-1980s, economists and policymakers had become more skeptical about the benefits of an international monetary system based on floating rates. ▪ Why has the performance of floating rates been so disappointing? ▪ What direction should reform of the current system take? ▪ This chapter compares the macroeconomic policy problems of different exchange rate regimes
The Case for Floating Exchange rates There are three arguments in favor of floating exchange rates Monetary policy autonomy Symmetry Exchange rates as automatic stabilizers Copyright C 2003 Pearson Education, Inc Slide 19-4
Copyright © 2003 Pearson Education, Inc. Slide 19-4 The Case for Floating Exchange Rates ▪ There are three arguments in favor of floating exchange rates: • Monetary policy autonomy • Symmetry • Exchange rates as automatic stabilizers
The Case for Floating Exchange rates Monetary Policy autonomy Floating exchange rates Restore monetary control to central banks Allow each country to choose its own desired long-run inflation rate Copyright C 2003 Pearson Education, Inc Slide 19-5
Copyright © 2003 Pearson Education, Inc. Slide 19-5 ▪ Monetary Policy Autonomy • Floating exchange rates: – Restore monetary control to central banks – Allow each country to choose its own desired long-run inflation rate The Case for Floating Exchange Rates