Exchange Rates and Global Financial Policies PDF
Preview Exchange Rates and Global Financial Policies
Exchange Rates and Global Financial Policies World Scientific Studies in International Economics (ISSN: 1793-3641) Series Editor Robert M. Stern, University of Michigan and University of California-Berkeley, USA Editorial Board Vinod K. Aggarwal, University of California-Berkeley, USA Alan Deardorff, University of Michigan, USA Paul De Grauwe, London School of Economics, UK Barry Eichengreen, University of California-Berkeley, USA Mitsuhiro Fukao, Keio University, Tokyo, Japan Robert L. Howse, New York University, USA Keith E. Maskus, University of Colorado, USA Arvind Panagariya, Columbia University, USA Vol. 26 World Trade Organization and International Trade Law: Antidumping, Subsidies and Trade Agreements by Gary N Horlick (Law Offices of Gary N Horlick, USA & University of Bern, Switzerland) Vol. 27 European Economic Integration, WTO Membership, Immigration and Offshoring by Wilhelm Kohler (University of Tübingen, Germany) Vol. 28 Services Trade Reform: Making Sense of It by Philippa Dee (Australian National University, Australia) Vol. 29 The Social Value of the Financial Sector: Too Big to Fail or Just Too Big? edited by Viral V Acharya (New York University, USA & Centre for Economic Policy (CEPR), UK), Thorsten Beck (Tilburg University, The Netherlands & Centre for Economic Policy (CEPR), UK), Douglas D Evanoff (Federal Reserve Bank of Chicago, USA), George G Kaufman (Loyola University Chicago, USA), & Richard Portes (London Business School, UK & Centre for Economic Policy (CEPR), UK) Vol. 30 The Role of Central Banks in Financial Stability: How Has It Changed? edited by Douglas D Evanoff (Federal Reserve Bank of Chicago, USA), Cornelia Holthausen (European Central Bank, Germany), George G Kaufman (Loyola University Chicago, USA) & Manfred Kremer (European Central Bank, Germany) Vol. 31 Exchange Rates and Global Financial Policies by Paul De Grauwe (London School of Economics, UK) Vol. 32 Asian Free Trade Agreements and WTO Compatibility: Goods, Services, Trade Facilitation and Economic Cooperation by Shintaro Hamanaka (Asian Development Bank, Philippines) Vol. 33 Economics and Politics of Trade Policy by Douglas R Nelson (Tulane University, USA) The complete list of the published volumes in the series can be found at http://www.worldscientific.com/series/wssie 31World Scientific Studies in International Economics Exchange Rates and Global Financial Policies Paul De Grauwe London School of Economics, UK World Scientific NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE Library of Congress Cataloging-in-Publication Data Grauwe, Paul de. Exchange rates and global financial policies / by Paul De Grauwe (London School of Economics, UK). pages cm. -- (World Scientific studies in international economics, ISSN 1793-3641 ; volume 31) Includes bibliographical references and index. ISBN-13: 978-9814513180 ISBN-10: 9814513180 1. Foreign exchange rates. 2. Monetary policy. 3. International finance. I. Title. HG3851.G6926 2014 332.4'5--dc23 2013038608 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Copyright © 2014 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the publisher. For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher. In-house Editor: Alisha Nguyen Typeset by Stallion Press Email: [email protected] Printed in Singapore December2,2013 12:9 9inx6in ExchangeRatesandGlobalFinancialPolicy b1599-fm Acknowledgements Theauthorwouldliketothankthefollowingpublishers,journalsand co-authors for granting their permissions to reproduce the chapters in this volume: Publishers Cambridge University Press Routledge Journals Australian Economic Review Banca Nazionale del Lavoro Quarterly Review Economic Theory European Economic Review Financial Times International Finance International Journal of Finance and Economics Journal of Banking and Finance Journal of Common Market Studies Journal of Economic Behavior and Organization Journal of Economic Dynamics and Control Journal for Institutional Comparisons Open Economics Review Public Choice Scandinavian Journal of Economics Weltwirtschaftliches Archiv v December2,2013 12:9 9inx6in ExchangeRatesandGlobalFinancialPolicy b1599-fm vi Acknowledgements Co-authors Yunus Aksoy (Birkbeck College, London) Michel Beine (University of Luxembourg, Luxembourg) Hans Dewachter (University of Leuven, Belgium) Marianna Grimaldi (Sveriges Riksbank, Stockholm) Magdalena Polan (Goldmann Sachs, London) Cl´audia Costa Storti (European Monitoring Centre on Drugs and Drug Abuse, Lisbon) J. Spaventa (Deceased in 2012) Isabel Vansteenkiste (European Central Bank, Frankfurt) Wim Vanhaverbeke (University of Hasselt, Belgium) December2,2013 12:9 9inx6in ExchangeRatesandGlobalFinancialPolicy b1599-fm Contents Acknowledgements v About the Author xi Introduction xiii PART I: EXCHANGE RATE ECONOMICS 1 Theoretical 1. Chaos in the Dornbusch Model of the Exchange Rate 3 Paul De Grauwe and Hans Dewachter 2. Heterogeneity of Agents, Transactions Costs and the Exchange Rate 33 Paul De Grauwe and Marianna Grimaldi 3. Exchange Rate Puzzles: A Tale of Switching Attractors 71 Paul De Grauwe and Marianna Grimaldi Empirical 119 4. Exchange Rates in Search of Fundamentals: The Case of the Euro–Dollar Rate 121 Paul De Grauwe vii December2,2013 12:9 9inx6in ExchangeRatesandGlobalFinancialPolicy b1599-fm viii Contents 5. Exchange Rates and Fundamentals: A Non-Linear Relationship? 159 Paul De Grauwe and Isabel Vansteenkiste 6. The Impact of FX Central Bank Intervention in a Noise Trading Framework 189 Michel Beine, Paul De Grauwe and Marianna Grimaldi PART II: MONETARY INTEGRATION 217 7. Conditions for Monetary Integration: A Geometric Interpretation 219 Paul De Grauwe 8. Is Europe an Optimum Currency Area? Evidence from Regional Data 231 Paul De Grauwe and Wim Vanhaverbeke 9. Setting Conversion Rates for the Third Stage of EMU 253 Paul De Grauwe and Luigi Spaventa 10. The Euro and Financial Crises 269 Paul De Grauwe 11. What Have We Learnt about Monetary Integration since the Maastricht Treaty? 273 Paul De Grauwe 12. The Governance of a Fragile Eurozone 297 Paul De Grauwe 13. Do Asymmetries Matter for European Monetary Policy? 321 Yunus Aksoy, Paul De Grauwe and Hans Dewachter December2,2013 12:9 9inx6in ExchangeRatesandGlobalFinancialPolicy b1599-fm Contents ix PART III: MACROECONOMICS AND MONETARY POLICY 355 14. Is Inflation always and Everywhere a Monetary Phenomenon? 357 Paul De Grauwe and Magdalena Polan 15. Monetary Policy and the Real Economy 383 Paul De Grauwe and Cl´audia Costa Storti 16. Lessons from the Banking Crisis: A Return to Narrow Banking 415 Paul De Grauwe 17. The Scientific Foundation of Dynamic Stochastic General Equilibrium (DSGE) Models 427 Paul De Grauwe 18. Animal Spirits and Monetary Policy 473 Paul De Grauwe 19. Booms and Busts in Economic Activity: A Behavioral Explanation 521 Paul De Grauwe Index 557
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