Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics

Maurice Obstfeld

No 3533, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The New Open Economy Macroeconomics has allowed economists to tackle classical problems with new tools, while also generating new ideas and questions. In their attempts to make the new models capture empirical regularities, researchers have entertained a variety of assumptions about the international pricing of goods, notably, models of pricing to market and destination-currency pricing of exports. Some of the resulting models imply that exchange-rate changes lack international expenditure-switching effects, and they thus appear to call for a radical rethinking of the role of exchange rates in international adjustment. This Paper argues that the recent resurgence of exchange-rate pessimism stems from oversimplified modeling strategies rather than from evidence. Like earlier episodes starting with the extreme ?elasticity pessimism? of the early postwar era, it is based on a misinterpretation of the empirical record.

Keywords: Exchange rate policy; International adjustment; Expenditure-switching effects; Elasticity pessimism; International competitiveness (search for similar items in EconPapers)
JEL-codes: F31 F32 F41 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-ifn, nep-lam and nep-mac
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Citations: View citations in EconPapers (102)

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Related works:
Working Paper: Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics (2003)
Journal Article: Exchange Rates and Adjustment: Perspectives from the New Open- Economy Macroeconomics (2002)
Working Paper: Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics (2002)
Working Paper: Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics (2002)
Working Paper: Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics (2002)
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