International Economics
FIFTEENTH EDITION
ROBERT J. CARBAUGH
Professor of Economics, Central Washington University
International Economics FIFTEENTH EDITION ROBERT J. CARBAUGH Professor of Economics, Central Washington University电子书下载
Library of Congress Control Number: 2014940617
ISBN: 978-1-285-85435-9
目录：
Brief Contents
PREFACE .......................................................................................................... xv
CHAPTER 1 The International Economy and Globalization .............................. 1
PART 1 International Trade Relations 27
CHAPTER 2 Foundations of Modern Trade Theory: Comparative
Advantage ........................................................................................ 29
CHAPTER 3 Sources of Comparative Advantage ............................................ 69
CHAPTER 4 Tariffs ............................................................................................. 107
CHAPTER 5 Nontariff Trade Barriers ............................................................... 149
CHAPTER 6 Trade Regulations and Industrial Policies ................................. 181
CHAPTER 7 Trade Policies for the Developing Nations ................................ 227
CHAPTER 8 Regional Trading Arrangements ................................................ 267
CHAPTER 9 International Factor Movements and Multinational
Enterprises ..................................................................................... 295
PART 2 International Monetary Relations 327
CHAPTER 10 The Balance-of-Payments ............................................................ 329
CHAPTER 11 Foreign Exchange ......................................................................... 357
CHAPTER 12 Exchange Rate Determination .................................................... 393
CHAPTER 13 Mechanisms of International Adjustment ................................. 419
CHAPTER 14 Exchange Rate Adjustments and the
Balance-of-Payments .................................................................... 427
CHAPTER 15 Exchange Rate Systems and Currency Crises .......................... 445
CHAPTER 16 Macroeconomic Policy in an Open Economy ........................... 479
CHAPTER 17 International Banking: Reserves, Debt, and Risk ...................... 495
GLOSSARY ............................................................................................................. 513
INDEX .................................................................................................................... 527
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Contents
Preface ...................................................................................................................xv
CHAPTER 1
The International Economy and Globalization....................................... 1
Globalization of Economic Activity ............................................ 2
Waves of Globalization .................................................................. 3
Federal Reserve Policy Incites
Global Backlash. . . . . . . . . . . . . . . . . . . . . . . . 4
First Wave of Globalization: 1870–1914............................. 4
Second Wave of Globalization: 1945–1980......................... 5
Latest Wave of Globalization ............................................... 5
Diesel Engines and Gas Turbines as
Movers of Globalization . . . . . . . . . . . . . . . . 8
The United States as an Open Economy................................... 9
Trade Patterns......................................................................... 9
Labor and Capital ................................................................ 11
Why is Globalization Important? ..............................................12
Globalization and Competition..................................................15
Kodak Reinvents Itself under Chapter 11 Bankruptcy .... 15
Bicycle Imports Force Schwinn to Downshift ................... 16
Element Electronics Survives by Moving
TV Production to America............................................ 17
Common Fallacies of International Trade ..............................18
Is the United States Losing Its
Innovation Edge?. . . . . . . . . . . . . . . . . . . . . . 19
Does Free Trade Apply to Cigarettes? .....................................19
Is International Trade an Opportunity or a Threat
to Workers?............................................................................... 20
Backlash against Globalization...................................................22
The Plan of This Text .................................................................. 24
Summary.......................................................................................... 24
Key Concepts and Terms ............................................................25
Study Questions ............................................................................. 25
PART 1 International Trade Relations 27
CHAPTER 2
Foundations of Modern Trade Theory: Comparative Advantage...... 29
Historical Development of Modern Trade Theory ...............29
The Mercantilists .................................................................. 29
Why Nations Trade: Absolute Advantage ........................ 30
Why Nations Trade: Comparative Advantage ................. 31
David Ricardo. . . . . . . . . . . . . . . . . . . . . . . . . 32
Production Possibilities Schedules.............................................35
Trading under Constant-Cost Conditions...............................36
Basis for Trade and Direction of Trade............................ 36
Production Gains from Specialization ............................... 37
Consumption Gains from Trade ........................................ 38
Babe Ruth and the Principle of
Comparative Advantage. . . . . . . . . . . . . . . 39
Distributing the Gains from Trade .................................... 40
Equilibrium Terms of Trade ............................................... 41
Terms of Trade Estimates.................................................... 42
Dynamic Gains from Trade........................................................43
How Global Competition Led to Productivity
Gains for U.S. Iron Ore Workers ................................. 44
Changing Comparative Advantage............................................45
Trading under Increasing-Cost Conditions ............................46
Natural Gas Boom Fuels Debate. . . . . . . 47
Increasing-Cost Trading Case ............................................. 48
Partial Specialization ........................................................... 50
The Impact of Trade on Jobs .....................................................51
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Wooster, Ohio Bears the Brunt of Globalization ..................52
Comparative Advantage Extended to Many Products
and Countries ........................................................................... 53
More Than Two Products ................................................... 53
More Than Two Countries ................................................. 54
Exit Barriers .................................................................................... 55
Empirical Evidence on Comparative Advantage ...................56
Comparative Advantage and Global Supply Chains.............57
Advantages and Disadvantages of Outsourcing ............... 59
Outsourcing and the U.S. Automobile Industry............... 60
The iPhone Economy and Global Supply
Chains............................................................................... 60
Outsourcing Backfires for Boeing 787 Dreamliner .......... 61
Reshoring Production to the United States....................... 63
Summary.......................................................................................... 64
Key Concepts and Terms ............................................................65
Study Questions ............................................................................. 65
Exploring Further .......................................................................... 67
CHAPTER 3
Sources of Comparative Advantage ...................................................... 69
Factor Endowments as a Source of Comparative
Advantage.................................................................................. 69
The Factor-Endowments Theory ........................................ 70
Visualizing the Factor-Endowment Theory ...................... 72
Applying the Factor-Endowment Theory to
U.S.–China Trade ........................................................... 73
Chinese Manufacturers Beset By Rising Wages and a
Rising Yuan ..................................................................... 74
Globalization Drives Changes for U.S.
Automakers. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Factor-Price Equalization .................................................... 76
Who Gains and Loses from Trade?
The Stolper–Samuelson Theorem ................................. 78
Is International Trade a Substitute
for Migration?.................................................................. 79
Specific Factors: Trade and the Distribution of
Income in the Short Run ............................................... 81
Does Trade Make the Poor Even Poorer?......................... 81
Is the Factor-Endowment Theory a Good Predictor
of Trade Patterns? ................................................................... 83
Skill as a Source of Comparative Advantage..........................84
Economies of Scale and Comparative Advantage .................85
Internal Economies of Scale ................................................ 86
External Economies of Scale................................................ 87
Overlapping Demands as a Basis for Trade ...........................88
Does a “Flat World” Make
Ricardo Wrong?. . . . . . . . . . . . . . . . . . . . . . . 89
Intra-industry Trade ..................................................................... 90
Technology as a Source of Comparative Advantage:
The Product Cycle Theory....................................................92
Radios, Pocket Calculators, and the International
Product Cycle................................................................... 94
Japan Fades in the Electronics Industry............................ 95
Dynamic Comparative Advantage: Industrial Policy............96
WTO Rules that Illegal Government Subsidies Support
Boeing and Airbus................................................................... 97
Do Labor Unions Stifle
Competitiveness? . . . . . . . . . . . . . . . . . . . . . 99
Government Regulatory Policies
and Comparative Advantage ................................................99
Transportation Costs and Comparative Advantage............101
Trade Effects........................................................................ 101
Falling Transportation Costs Foster Trade ..................... 103
Summary........................................................................................104
Key Concepts and Terms ..........................................................105
Study Questions ...........................................................................105
Exploring Further ........................................................................106
CHAPTER 4
Tariffs........................................................................................................ 107
The Tariff Concept......................................................................108
Types Of Tariffs...........................................................................109
Specific Tariff....................................................................... 109
Ad Valorem Tariff.............................................................. 110
Compound Tariff ................................................................ 111
Effective Rate of Protection.......................................................111
Trade Protectionism Intensifies As
Global Economy Falls Into the Great
Recession. . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Tariff Escalation...........................................................................114
Outsourcing and Offshore Assembly Provision...................115
Dodging Import Tariffs: Tariff Avoidance
and Tariff Evasion.................................................................116
Ford Strips Its Wagons to Avoid High
Tariff............................................................................... 117
Smuggled Steel Evades U.S. Tariffs .................................. 117
Gains from Eliminating
Import Tariffs . . . . . . . . . . . . . . . . . . . . . . . .118
Contents vii
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Postponing Import Tariffs.........................................................119
Bonded Warehouse............................................................. 119
Foreign–Trade Zone ........................................................... 119
FTZ’s Benefit Motor Vehicle Importers ........................... 120
Tariff Effects: An Overview.......................................................121
Tariff Welfare Effects: Consumer Surplus
and Producer Surplus ...........................................................122
Tariff Welfare Effects: Small Nation Model..........................123
Tariff Welfare Effects: Large Nation Model..............................126
The Optimum Tariff and Retaliation.............................. 128
Examples of U.S. Tariffs ............................................................130
Obama’s Tariffs on Chinese Tires.................................... 130
Should Footwear Tariffs Be Given
the Boot?......................................................................... 131
Could a Higher Tariff Put a Dent
in the Federal Debt?. . . . . . . . . . . . . . . . . .132
How a Tariff Burdens Exporters .............................................132
Tariffs and the Poor....................................................................134
Arguments for Trade Restrictions...........................................135
Job Protection...................................................................... 136
Protection against Cheap Foreign Labor......................... 136
Fairness in Trade: A Level Playing Field ........................ 139
Maintenance of the Domestic Standard of Living ......... 139
Equalization of Production Costs..................................... 140
Infant-Industry Argument................................................. 140
Noneconomic Arguments................................................... 140
Petition of the Candle Makers. . . . . . . . .142
The Political Economy of Protectionism...............................142
A Supply and Demand View of Protectionism .............. 144
Summary........................................................................................145
Key Concepts and Terms ..........................................................146
Study Questions ...........................................................................146
Exploring Further ........................................................................148
CHAPTER 5
Nontariff Trade Barriers......................................................................... 149
Absolute Import Quota..............................................................149
Trade and Welfare Effects................................................. 150
Allocating Quota Licenses ................................................. 152
Quotas versus Tariffs ......................................................... 153
Tariff–Rate Quota: A Two–Tier Tariff...................................154
Tariff–Rate Quota Bittersweet for
Sugar Consumers ................................................................. 156
Export Quotas ..............................................................................156
Japanese Auto Restraints Put Brakes on
U.S. Motorists................................................................ 157
Domestic Content Requirements.............................................158
How “Foreign” is Your Car? . . . . . . . . . .160
Subsidies.........................................................................................161
Domestic Production Subsidy............................................ 161
Export Subsidy .................................................................... 162
Dumping........................................................................................163
Forms of Dumping ............................................................. 163
International Price Discrimination .................................. 164
Antidumping Regulations..........................................................166
Swimming Upstream: The Case of
Vietnamese Catfish. . . . . . . . . . . . . . . . . . .167
Whirlpool Agitates for Antidumping Tariffs
on Clothes Washers ...................................................... 168
Canadians Press Washington Apple Producers
for Level Playing Field.................................................. 169
Is Antidumping Law Unfair?....................................................169
Should Average Variable Cost Be the Yardstick
for Defining Dumping?................................................. 170
Should Antidumping Law Reflect Currency
Fluctuations?.................................................................. 171
Are Antidumping Duties Overused? ................................ 171
Other Nontariff Trade Barriers................................................172
Government Procurement Policies.................................... 172
U.S. Fiscal Stimulus and Buy
American Legislation. . . . . . . . . . . . . . . . .173
Social Regulations ............................................................... 174
CAFÉ Standards ................................................................. 174
Europe Has a Cow over Hormone-Treated
U.S. Beef ......................................................................... 174
Sea Transport and Freight Regulations ........................... 175
Summary........................................................................................176
Key Concepts and Terms ..........................................................177
Study Questions ...........................................................................177
CHAPTER 6
Trade Regulations and Industrial Policies........................................... 181
U.S. Tariff Policies Before 1930 ...............................................181
Smoot–Hawley Act......................................................................183
Reciprocal Trade Agreements Act...........................................184
General Agreement on Tariffs and Trade .............................185
Trade without Discrimination .......................................... 185
Promoting Freer Trade ...................................................... 186
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Predictability: Through Binding and
Transparency ................................................................. 187
Multilateral Trade Negotiations ....................................... 187
World Trade Organization........................................................189
Avoiding Trade Barriers during
the Great Recession. . . . . . . . . . . . . . . . . .190
Settling Trade Disputes ...................................................... 191
Does the WTO Reduce National Sovereignty?................ 192
Should Retaliatory Tariffs Be Used for
WTO Enforcement? ...................................................... 193
Does the WTO Harm the Environment? ........................ 194
Harming the Environment ................................................ 194
Improving the Environment.............................................. 195
WTO Rules against China’s Hoarding
of Rare Earth Metals.................................................... 195
Future of the World Trade Organization ....................... 197
Trade Promotion Authority (Fast Track Authority) ..........198
Safeguards (The Escape Clause): Emergency
Protection from Imports......................................................199
U.S. Safeguards Limit Surging Imports of
Textiles from China...................................................... 200
Countervailing Duties: Protection against
Foreign Export Subsidies .....................................................201
Lumber Duties Hammer Home Buyers........................... 202
Antidumping Duties: Protection against Foreign
Dumping..................................................................................202
Would a Carbon Tariff Help Solve
the Climate Problem? . . . . . . . . . . . . . . . .203
Remedies against Dumped and Subsidized
Imports................................................................................... 204
U.S. Steel Companies Lose an Unfair Trade Case
and Still Win................................................................. 206
Section 301: Protection against Unfair
Trading Practices ...................................................................207
Protection of Intellectual Property Rights.............................208
The Globalization of Ideas and
Intellectual Property Rights. . . . . . . . . . .210
Microsoft Scorns China’s Piracy
of Software ..................................................................... 210
Trade Adjustment Assistance ...................................................212
Industrial Policies of the United States..................................212
U.S. Airlines and Boeing Spar over Export–Import
Bank Credit.................................................................... 214
U.S. Solar Industry Dims as China’s Industrial
Policy Lights Up ............................................................ 215
Industrial Policies of Japan .......................................................216
Strategic Trade Policy.................................................................217
Economic Sanctions ....................................................................219
Factors Influencing the Success of Sanctions .................. 220
Economic Sanctions and Weapons of Mass
Destruction: North Korea and Iran ........................... 221
Summary........................................................................................223
Key Concepts and Terms ..........................................................224
Study Questions ...........................................................................224
Exploring Further ........................................................................225
CHAPTER 7
Trade Policies for the Developing Nations ......................................... 227
Developing-Nation Trade Characteristics..............................227
Tensions between Developing Nations
and Advanced Nations.........................................................229
Trade Problems of the Developing Nations .........................229
Unstable Export Markets................................................... 230
Falling Commodity Prices Threaten Growth
of Exporting Nations .................................................... 232
Worsening Terms of Trade ............................................... 232
Limited Market Access....................................................... 233
Agricultural Export Subsidies of Advanced
Nations ........................................................................... 235
Bangladesh’s Sweatshop Reputation................................. 235
Stabilizing Primary-Product Prices .........................................237
Production and Export Controls ...................................... 237
Buffer Stocks ........................................................................ 237
Multilateral Contracts........................................................ 239
Does the Fair Trade Movement Help Poor
Coffee Farmers?............................................................. 239
The OPEC Oil Cartel .................................................................240
Maximizing Cartel Profits................................................. 240
OPEC as a Cartel ............................................................... 242
Does Foreign Direct Investment
Hinder or Help Economic
Development?. . . . . . . . . . . . . . . . . . . . . . . .244
Aiding the Developing Nations................................................244
The World Bank ................................................................. 245
International Monetary Fund........................................... 246
Generalized System of Preferences.................................... 247
Does Aid Promote Growth of Developing
Nations?.......................................................................... 248
How to Bring Developing Nations in from
the Cold.................................................................................. 248
Economic Growth Strategies: Import Substitution
versus Export Led Growth ..................................................250
Import Substitution ............................................................ 250
Import Substitution Laws Backfire on Brazil ................. 251
Export Led Growth............................................................. 252
Is Economic Growth Good for the Poor? ........................ 253
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Can All Developing Nations Achieve Export
Led Growth? .................................................................. 253
East Asian Economies ................................................................254
Flying Geese Pattern of Growth........................................ 255
Is State Capitalism Winning? . . . . . . . . . 256
China’s Great Leap Forward.....................................................257
Challenges for China’s Economy ...................................... 258
China’s Export Boom Comes at a Cost: How to
Make Factories Play Fair............................................. 260
India: Breaking Out of the Third World...............................261
Brazil Takes off ............................................................................263
Summary........................................................................................264
Key Concepts and Terms ..........................................................265
Study Questions ...........................................................................265
CHAPTER 8
Regional Trading Arrangements .......................................................... 267
Regional Integration versus Multilateralism.........................267
Types of Regional Trading Arrangements ............................268
Impetus for Regionalism............................................................270
Effects of a Regional Trading Arrangement .........................270
Static Effects......................................................................... 270
Dynamic Effects................................................................... 273
Is the U.S.–South Korea Free-Trade
Agreement Good for Americans? . . . . . 274
The European Union..................................................................274
Pursuing Economic Integration ........................................ 275
Agricultural Policy.............................................................. 276
Is the European Union Really a
Common Market? ......................................................... 278
Economic Costs and Benefits of a Common Currency:
The European Monetary Union ........................................280
Optimum Currency Area................................................... 280
Eurozone’s Problems and Challenges............................... 281
European Monetary “Disunion”. . . . . . .282
Will the Eurozone Survive? ............................................... 283
North American Free Trade Agreement................................284
NAFTA’s Benefits and Costs for
Mexico and Canada............................................................ 285
NAFTA’s Benefits and Costs for the
United States.................................................................. 286
U.S.–Mexico Trucking Dispute ......................................... 288
U.S.–Mexico Tomato Dispute ........................................... 289
Is NAFTA an Optimum Currency Area?........................ 290
Summary........................................................................................291
Key Concepts and Terms ..........................................................292
Study Questions ...........................................................................292
Exploring Further ........................................................................293
CHAPTER 9
International Factor Movements and Multinational Enterprises..... 295
The Multinational Enterprise ...................................................295
Motives for Foreign Direct Investment..................................297
Demand Factors.................................................................. 298
Cost Factors ......................................................................... 298
Supplying Products to Foreign Buyers: Whether
to Produce Domestically or Abroad .................................299
Direct Exporting versus Foreign Direct
Investment/Licensing .................................................... 300
Foreign Direct Investment versus Licensing.................... 301
Country Risk Analysis................................................................302
Do U.S. Multinationals Exploit
Foreign Workers? . . . . . . . . . . . . . . . . . . . .303
International Trade Theory and Multinational
Enterprise.................................................................................305
Japanese Transplants in the U.S. Automobile Industry.....305
International Joint Ventures .....................................................307
Welfare Effects..................................................................... 308
Multinational Enterprises as a Source of Conflict...............310
Employment......................................................................... 310
Caterpillar Bulldozes Canadian Locomotive Workers........ 311
Technology Transfer ........................................................... 312
National Sovereignty .......................................................... 314
Balance-of-Payments .......................................................... 315
Transfer Pricing .................................................................. 316
International Labor Mobility: Migration ...............................316
Apple Uses Tax Loopholes
to Dodge Taxes . . . . . . . . . . . . . . . . . . . . . .317
The Effects of Migration .................................................... 318
Immigration as an Issue.................................................... 320
Does Canada’s Immigration Policy Provide
a Model for the United States? ................................... 322
Does U.S. Immigration Policy Harm
Domestic Workers?. . . . . . . . . . . . . . . . . . .323
Summary........................................................................................324
Key Concepts and Terms ..........................................................324
Study Questions ...........................................................................324
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PART 2 International Monetary Relations 327
CHAPTER 10
The Balance-of-Payments ...................................................................... 329
Double Entry Accounting..........................................................329
Balance-of-Payments Structure ................................................331
Current Account ................................................................. 331
Capital and Financial Account......................................... 332
International Payments Process. . . . . . .333
Official Settlements Transactions ..................................... 334
Special Drawing Rights ...................................................... 335
Statistical Discrepancy: Errors and Omissions ............... 336
U.S. Balance-of-Payments..........................................................337
What Does a Current Account Deficit (Surplus) Mean?........ 339
Net Foreign Investment and the Current
Account Balance............................................................ 340
Impact of Capital Flows on the Current Account ......... 340
Is a Current Account Deficit a Problem?........................ 341
The iPhone’s Complex Supply
Chain Depicts Limitations of
Trade Statistics . . . . . . . . . . . . . . . . . . . . . .342
Business Cycles, Economic Growth, and the Current
Account........................................................................... 343
How the United States Has Borrowed at
Very Low Cost............................................................... 344
Do Current Account Deficits Cost
Americans Jobs? ............................................................ 345
Can the United States Continue to Run Current
Account Deficits Indefinitely?...................................... 346
Balance of International Indebtedness ...................................348
United States as a Debtor Nation.................................... 349
Global Imbalances. . . . . . . . . . . . . . . . . . . .350
The Dollar as the World’s Reserve Currency.......................351
Benefits to the United States............................................. 351
A New Reserve Currency?.................................................. 352
Summary........................................................................................353
Key Concepts and Terms ..........................................................354
Study Questions ...........................................................................354
CHAPTER 11
Foreign Exchange ................................................................................... 357
Foreign Exchange Market..........................................................357
Types of Foreign Exchange Transactions..............................359
Interbank Trading .......................................................................361
Reading Foreign Exchange Quotations ..................................363
Yen Depreciation Drives Toyota
Profits Upward. . . . . . . . . . . . . . . . . . . . . . .366
Forward and Futures Markets..................................................366
Foreign Currency Options.........................................................368
Exchange Rate Determination..................................................369
Demand for Foreign Exchange ......................................... 369
Supply of Foreign Exchange .............................................. 369
Equilibrium Rate of Exchange .......................................... 370
Indexes of the Foreign-Exchange Value of the Dollar:
Nominal and Real Exchange Rates ...................................371
Arbitrage ........................................................................................373
The Forward Market...................................................................374
The Forward Rate............................................................... 375
Relation between the Forward
Rate and Spot Rate....................................................... 376
Managing Your Foreign Exchange Risk:
Forward Foreign Exchange Contract ......................... 377
Case 1................................................................................... 378
Case 2................................................................................... 378
How Markel, Volkswagen, and Nintendo
Manage Foreign Exchange Risk.................................. 379
Does Foreign Currency Hedging Pay Off?....................... 380
Currency Risk and the Hazards of
Investing Abroad. . . . . . . . . . . . . . . . . . . . .381
Interest Arbitrage, Currency Risk, and Hedging .................382
Uncovered Interest Arbitrage ............................................ 382
Covered Interest Arbitrage (Reducing Currency Risk) ......383
Foreign Exchange Market Speculation...................................384
Long and Short Positions .................................................. 385
Andy Krieger Shorts the New Zealand Dollar................ 385
George Soros Shorts the Yen ............................................. 385
People’s Bank of China Widens Trading Band
to Punish Currency Speculators.................................. 386
Stabilizing and Destabilizing Speculation ....................... 386
Foreign Exchange Trading as a Career..................................387
Foreign Exchange Traders Hired by Commercial
Banks, Companies, and Central Banks ..................... 387
How to Play the Falling (Rising) Dollar. . . 388
Currency Markets Draw Day Traders............................. 389
Summary........................................................................................390
Key Concepts and Terms ..........................................................390
Study Questions ...........................................................................390
Exploring Further ........................................................................392
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CHAPTER 12
Exchange Rate Determination.............................................................. 393
What Determines Exchange Rates?.........................................393
Determining Long Run Exchange Rates................................395
Relative Price Levels ........................................................... 396
Relative Productivity Levels............................................... 396
Preferences for Domestic or Foreign Goods .................... 396
Trade Barriers ..................................................................... 398
Inflation Rates, Purchasing-Power-Parity,
and Long Run Exchange Rates ..........................................398
Law of One Price................................................................ 398
Burgeromics: The “Big Mac” Index and the
Law of One Price .......................................................... 399
Purchasing-Power-Parity ................................................... 400
Inflation Differentials and the
Exchange Rate. . . . . . . . . . . . . . . . . . . . . . .401
Determining Short Run Exchange Rates:
The Asset Market Approach...............................................404
Relative Levels of Interest Rates........................................ 405
Expected Change in the Exchange Rate .......................... 407
Diversification, Safe Havens,
and Investment Flows .................................................. 408
International Comparisons of GDP:
Purchasing-Power-Parity. . . . . . . . . . . . . .409
Exchange Rate Overshooting....................................................410
Forecasting Foreign Exchange Rates.......................................411
Judgmental Forecasts.......................................................... 412
Technical Forecasts............................................................. 413
Fundamental Analysis........................................................ 414
Commercial Mexicana Gets
Burned by Speculation . . . . . . . . . . . . . . .415
Summary........................................................................................416
Key Concepts and Terms ..........................................................416
Study Questions ...........................................................................416
Exploring Further ........................................................................418
CHAPTER 13
Mechanisms of International Adjustment........................................... 419
Price Adjustments........................................................................420
Gold Standard..................................................................... 420
Quantity Theory of Money ............................................... 420
Current Account Adjustment............................................ 421
Financial Flows and Interest Rate Differentials ...................422
Income Adjustments...................................................................423
Disadvantages of Automatic Adjustment Mechanisms.........424
Monetary Adjustments...............................................................425
Summary........................................................................................425
Key Concepts and Terms ..........................................................426
Study Questions ...........................................................................426
Exploring Further ........................................................................426
CHAPTER 14
Exchange Rate Adjustments and the Balance-of-Payments ............ 427
Effects of Exchange Rate Changes
on Costs and Prices ..............................................................427
Case 1: No Foreign Sourcing—All Costs Are
Denominated in Dollars............................................... 428
Case 2: Foreign Sourcing—Some Costs Denominated
in Dollars and Some Costs Denominated
in Francs ........................................................................ 428
Cost Cutting Strategies of Manufacturers in
Response to Currency Appreciation .................................430
Appreciation of the Yen: Japanese
Manufacturers ............................................................... 430
Japanese Firms Send Work Abroad as
Rising Yen Makes Their Products Less
Competitive . . . . . . . . . . . . . . . . . . . . . . . . .432
Appreciation of the Dollar:
U.S. Manufacturers....................................................... 432
Will Currency Depreciation Reduce a
Trade Deficit? The Elasticity Approach...........................433
J–Curve Effect: Time Path of Depreciation ..........................436
Exchange Rate Pass-Through ...................................................438
Partial Exchange Rate Pass-Through............................... 438
Does Currency Depreciation Give Weak
Countries a Way out of Crisis?. . . . . . . .441
The Absorption Approach to Currency
Depreciation............................................................................441
The Monetary Approach to Currency Depreciation ..........442
Summary........................................................................................443
Key Concepts and Terms ..........................................................444
Study Questions ...........................................................................444
Exploring Further ........................................................................444
xii Contents
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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CHAPTER 15
Exchange Rate Systems and Currency Crises.................................... 445
Exchange Rate Practices.............................................................445
Choosing an Exchange Rate System: Constraints
Imposed by Free Capital Flows..........................................447
Fixed Exchange Rate System....................................................448
Use of Fixed Exchange Rates ............................................ 448
Par Value and Official Exchange Rate............................ 450
Exchange Rate Stabilization.............................................. 450
Devaluation and Revaluation ........................................... 452
Bretton Woods System of Fixed Exchange Rates ........... 452
Floating Exchange Rates ............................................................453
Achieving Market Equilibrium......................................... 454
Trade Restrictions, Jobs, and Floating
Exchange Rates.............................................................. 455
Arguments for and against Floating Rates ..................... 455
Managed Floating Rates.............................................................456
Managed Floating Rates in the Short
Run and Long Run....................................................... 457
Exchange Rate Stabilization and Monetary Policy........ 459
Is Exchange Rate Stabilization Effective? ........................ 461
The Crawling Peg ........................................................................462
Currency Manipulation and Currency Wars........................462
Is China a Currency Manipulator?.................................. 464
Currency Crises............................................................................465
The Global Financial Crisis
of 2007–2009. . . . . . . . . . . . . . . . . . . . . . . . .466
Sources of Currency Crises ................................................ 468
Speculators Attack East Asian Currencies....................... 469
Capital Controls...........................................................................470
Should Foreign Exchange Transactions be Taxed?........ 471
Increasing the Credibility of Fixed Exchange Rates ...........472
Currency Board................................................................... 472
For Argentina, No Panacea in a Currency Board......... 474
Dollarization........................................................................ 475
Summary........................................................................................477
Key Concepts and Terms ..........................................................478
Study Questions ...........................................................................478
CHAPTER 16
Macroeconomic Policy in an Open Economy ..................................... 479
Economic Objectives of Nations..............................................479
Policy Instruments.......................................................................480
Aggregate Demand and Aggregate Supply:
a Brief Review.........................................................................480
Monetary and Fiscal Policy in a Closed Economy .............481
Monetary and Fiscal Policy in an Open Economy .............483
Effect of Fiscal and Monetary Policy under
Fixed Exchange Rates................................................... 484
Effect of Fiscal and Monetary Policy under
Floating Exchange Rates .............................................. 486
Macroeconomic Stability and the Current Account:
Policy Agreement versus Policy Conflict.........................486
Monetary and Fiscal Policy Respond to
Financial Turmoil in the Economy. . . . . 487
Inflation with Unemployment..................................................488
International Economic Policy Coordination.......................488
Policy Coordination in Theory ......................................... 489
Does Policy Coordination Work? ..................................... 491
Does Crowding Occur in an
Open Economy?. . . . . . . . . . . . . . . . . . . . . .492
Summary........................................................................................493
Key Concepts and Terms ..........................................................493
Study Questions ...........................................................................494
CHAPTER 17
International Banking: Reserves, Debt, and Risk............................... 495
Nature of International Reserves .............................................495
Demand for International Reserves ........................................496
Exchange Rate Flexibility................................................... 496
Other Determinants............................................................ 498
Supply of International Reserves .............................................499
Foreign Currencies ......................................................................499
Gold ................................................................................................500
International Gold Standard............................................. 501
Gold Exchange Standard ................................................... 501
Demonetization of Gold..................................................... 502
Should the United States Return to the
Gold Standard?.............................................................. 503
Special Drawing Rights ..............................................................503
Facilities for Borrowing Reserves.............................................504
IMF Drawings ..................................................................... 504
General Arrangements to Borrow .................................... 504
Swap Arrangements............................................................ 505
International Lending Risk........................................................505
Contents xiii
Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
The Problem of International Debt ........................................506
Dealing with Debt Servicing Difficulties.......................... 507
Reducing Bank Exposure to Developing
Nation Debt ............................................................................508
Debt Reduction and Debt Forgiveness...................................509
The Eurodollar Market...............................................................510
Summary........................................................................................511
Key Concepts and Terms ..........................................................511
Study Questions ...........................................................................511
Glossary ...............................................................................................................513
Index....................................................................................................................527
