Peter B. Kenen

Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates

This paper examines short-term volatility in the real effective exchange rates of industrial countries and its impact on their imports. It yields three conclusions. First, volatility has not diminished as markets have gained experience with floating exchange rates; the trend appears to be in the opposite direction for some countries. Second, exposure to short-term volatility has differed among countries; Japan and Sweden have experienced much more than most other industrial countries. Third, volatility appears to depress the volume of international trade. This third finding is consistent with results reported by Cushman and by Akhtar and Hilton and challenges earlier findings by Hooper and Kohlhagen.

Understanding interdependence : the macroeconomics of the open economy

List of FiguresList of TablesIntroduction1The Endogeneity of Exchange-Rate Regimes32Exchange-Rate Behavior under Alternative Exchange-Rate Arrangements343Panel: One Money for How Many?844Exchange Rates, Prices, and External Adjustment in the United States and Japan1075The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence1696International Capital Mobility in the 1990s2017A Retrospective on the Debt Crisis2628Trade Liberalization in Disinflation2919Inflation and Growth in an Integrated Approach31310Panel: The Outlook for Stabilization and Reform in Central and Eastern Europe36811International Cooperation in the Making of National Macroeconomic Policies: Where Do We Stand?39112The Political Economy of Monetary Union44813What Do We Need to Know about the International Monetary System?509Conference Participants531Author Index535Subject Index543

The international financial architecture : what's new? what's missing?

Shortly after the Mexican crisis of 1994-95, the major industrial countries undertook to strengthen the international financial architecture. They sought to reduce the risk of future crises by increasing the availability of information about economic conditions in emerging-market countries and strengthening the financial systems of those countries. They sought better ways to manage future crises, including ways to involve private-sector creditors in crisis management.In this book, Peter B. Kenen reviews the reform effort and assesses the results. He shows how the effort was influenced by the Asian, Russian, and Brazilian crises. He compares the results of the effort with the more radical recommendations of outside experts and of the Meltzer Report, and examines the implications of the reform effort for the role of the International Monetary Fund (IMF).Kenen finds that there have been useful innovations but calls for bolder efforts aimed at five objectives: (1) increasing the usefulness of IMF surveillance by focusing it sharply on the sustainability of national policies, exchange rates, and debt profiles; (2) narrowing the scope of IMF conditionality by ceasing to treat acute crises as opportunities to achieve fundamental reforms; (3) providing incentives to foster financial reform in emerging-market countries and, in the interim, encouraging them to limit short-term foreign borrowing by their banks and corporations; (4) using the IMFs resources more effectively by making less money available but disbursing it more rapidly; and (5) enlisting the private sector in crisis management by introducing roll-over clauses into short-term debt contracts and collective-action clauses into long-term debt contracts.

The Demand for International Reserves

IF economists could measure the need for reserves, they might be able to agree on the right way to reform the international monetary system. Most of the economists who propose drastic reform do so because they anticipate a shortage of reserves; some even believe that the shortage is upon us. Those who advocate more gradual change believe that reserves are adequate now and for the next several years; some even believe that reserves are excessive. Unfortunately, there is no way to measure the adequacy of reservesnot even to make historical comparisons. Scitovskys comments illustrate several of the problems involved in appraising the global stock of reserves:

International trade and finance : frontiers for research

Part I. Trade, Production, and Domestic Production: 1. Testing Trade Theories Robert M. Stern 2. The Costs and Consequences of Protection: A Survey of Empirical Work W. M. Corden 3. Trade Policies and Economic Development Carlos F. Diaz-Alejandro Part II: Econometric Models of Trade and Payments: 4. Price, Incomes, and Foreign Trade Stephen P. Magee 5. The Multinational Corporation and Direct Investment G. C. Hufbauer 6. Empirical Research on Financial Capital Flows Ralph C. Bryant Part III. Payments Adjustment and the Monetary System: 7. Adjustment under Fixed and Flexible Exchange Rates John Helliwell 8. International Reserves and Liquidity Benjamin J. Cohen 9. The LINK Model of World Trade, with Applications to 1972-73 L. R. Klein, C. Moriguchi and A. Van Peeterssen Part IV. An Overview and Agenda: What We Need to Know: Panel Discussion Charles P. Kindleberger, Hollis B. Chenery, Jagdish Bhagwati, Richard N. Cooper, Wilson Schmidt, Milton Gilbert and Harry G. Johnson.

Transitional Arrangements for Trade and Payments Among the CMEA Countries

The CMEA countries are starting to conduct their trade at world prices and in convertible currencies. These are crucial steps in economic reform but will worsen Eastern Europes terms of trade and drive it into current account deficit with the U.S.S.R. Proposals have been made for a payments union, resembling the European Payments Union of 1950-58, to ease the transition. Such an arrangement would not function well if it included the U.S.S.R., which would be a persistent creditor. Other ways must be found to deal with the transition.

Managing exchange rates

1. Introduction 2. The rationale for managing exchange rates 3. Methods of managing exchange rates 4. Governments and markets 5. Improving reserve arrangements 6. Co-ordinating national policies.

The euro versus the dollar: will there be a struggle for dominance? ☆

Abstract The international role of a national currency has many dimensions. In domains such as foreign-exchange trading, single-currency dominance can be expected, and there is no evidence that the euro is displacing the dollar. In domains such an portfolio management, diversification can be expected, and the advent of the euro is having discernable effects. In still other domains, such as reserve management, outcomes depend on these two tendencies jointly; the currency-composition of reserved depends on the roles of various currencies in foreign-exchange trading but also depends on the forces governing other forms of portfolio management. Thus far, however, the reserve role of the euro has not much exceeded that of the deutsche mark. The paper predicts a growing role for the euro in the monetary and currency regimes of countries that will soon join the EU but finds no reason to believe that the euro will displace the dollar as the main international currency.

Intramarginal Intervention in the EMS and the Target-Zone Model of Exchange-Rate Behavior

Empirical work on exchange-rate behavior under a target-zone regime has used data produced by the European Monetary System (ENS) and has found that the data contradict important predictions made by the standard target-zone model. We argue that the contradictions reflect a misinterpretation of policies pursued by the ENS countries. They intervened intramarginally, to keep exchange rates well within the target zone, rather then intervening at the edges of the zone to prevent rates from crossing them. In the Besle-Nyborg Agreement of 1987, however, the ENS countries agreed to make fuller use of the band, and the effects of the agreement show up strongly in the data. Exchange rates behave differently after the agreement than they did before. The effect appears clearly in the behavior of the French franc and less decisively in the behavior of the Italian lira. The paper concludes by examining and rejecting alternative explanations for the observed differences in exchange-rate behavior.

Macroeconomic theory and policy: How the closed economy was opened

Publisher Summary This chapter discusses history of international transactions and relationships that were introduced into macroeconomic models and policy in the twenty-five years following the Second World War. Modern models of exchange-rate determination focus sharply on money and bond markets. The chapter discusses the Marshall–Lerner–Robinson that was developed to show how a change in the exchange rate affects the current-account balance. The Keynesian multiplier has been used to show how changes in domestic activity affect the balance of payments and to trace the propagation of business fluctuations. The chapter focuses on the aims and instruments of economic policy. It discusses fixed and flexible exchange rates that are dealt mainly with the best technique for altering rates promptly. The ways in which exchange-rate changes can influence wages and prices, nominal rates of return on financial instruments, or the demand for real balances are also discussed in the chapter. Finally, it reviews that the actors within any economic model base their own decisions on experience. The ways in which households, firms, and governments respond to information are conditioned by earlier successes and mistakes. They may be maximizing something or other, but their strategies are almost always based on imperfect information and imperfect methods for collecting and assessing it. The institutional framework within which they operate is itself a product of experience. Economists design their own models to fit certain sets of facts, frequently subsets of “stylized facts” distilled from recollection and observation by methods that lead to build models that fit the recent facts most closely.