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International Finance and Macroeconomics.

Jeffrey A. Frankel [*]

This summary of research by members of the NBER's Program on International Finance and Macroeconomics macroeconomics

Study of the entire economy in terms of the total amount of goods and services produced, total income earned, level of employment of productive resources, and general behaviour of prices.
 describes work on particular parts of the world, including the emerging markets, Japan, and Europe, as well as studies of international economic integration and flexible exchange rates that have universal relevance.

Recent Crises in Emerging Markets

Recurrent crises in emerging markets warrant much thought, and NBER NBER National Bureau of Economic Research (Cambridge, MA)
NBER Nittany and Bald Eagle Railroad Company
 researchers have responded accordingly. Some of their work has been discussed in a series of conferences organized by NBER President Martin Feldstein Martin Stuart "Marty" Feldstein (born November 25, 1939 in New York City) is an American economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president and CEO of the National Bureau of Economic Research (NBER).  and in annual meetings of the NBER's InterAmerican Seminar in Economics and the East Asian Seminar in Economics.

The most recent three-year period began with a number of postmortems on the Mexican peso crisis, including discussions of the origins of the crisis in 1994--by Sebastian Edwards, Andrew M. Warner, and Sergio L. Schmukler and me -- and analysis of its aftermath in 1995-- by Edwards and Miguel Savastano and Anne Krueger and Aaron Tornell. [1]

The return of crises in East Asia East Asia

A region of Asia coextensive with the Far East.

East Asian adj. & n.
 in 1997, and their spread to emerging market countries around the world in 1998, likewise raised a number of questions, including what had caused this turmoil. [2] Several explanations were considered, including the high and variable volume of flows in modern, liberalized international capital markets. [3]

Another possible explanation is increases in world interest rates, which seem to have been proximate causes in earlier crises, although less relevant in 1997-8. [4] A third possibility is the behavior of foreign investors, and a fourth is the composition of capital inflows. [5] A high level of foreign direct investment seems to be helpful, but a concentration of short-term dollar-denominated debt, especially relative to reserves, is a danger signal. Rodrik and Velasco show that the short-term debt-to-reserves ratio is a robust predictor of financial crises. [6]

Another possible explanation for the crises is attempts to maintain pegged exchange rates Pegged exchange rate

Exchange rate whose value is pegged to another currency's value or to a unit of account.
. [7] Such attempts in the crisis countries ended when foreign exchange reserves Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities.  were depleted de·plete  
tr.v. de·plet·ed, de·plet·ing, de·pletes
To decrease the fullness of; use up or empty out.

[Latin d
. The impact on the economy from the resulting devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments.  was greater than if the currency peg had been abandoned earlier. Policies to fix exchange rates in Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies.  were often the legacy of attempts to stabilize from high inflation rates in the 1980s. [8] In East Asia these policies have been complicated by rapid growth and by movements in the yen-dollar exchange rate. [9]

For some time there has been a division between those who attribute currency crises to traditional fundamentals, including overly expansionary monetary policy Expansionary monetary policy is monetary policy that seeks to increase the size of the money supply. In most nations, monetary policy is controlled by either a central bank or a finance ministry.  and other macroeconomic mac·ro·ec·o·nom·ics  
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors.
 policy mistakes--for example, Michael D. Bordo and Anna J. Schwartz--and those who attribute it to investor panic and multiple equilibriums, such as Steven Radelet and Jeffrey D. Sachs. [10] These competing theories of balance-of-payments crises have been classified as first-versus second-generation models of speculative attacks. Research by Robert P. Flood and Nancy P. Marion, Maurice Obstfeld Maurice Obstfeld is an American economist, born in 1952.

He is well known for his work in International economics. External links
  • Professional page
  • Curriculum Vitae
, and Velasco has put the different models into context. [11]

In East Asia, most of the countries had relatively good macroeconomic fundamentals. As a result, diagnoses of crises there emphasize a different sort of fundamentals instead of macroeconomic policies: distortions in the financial structures of emerging economies. [12] Specifically, a third generation of models of currency crises sought to explain "crony capitalism Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on close relationships between businessmen and government officials. ," defined more formally as implicit government guarantees for poorly regulated banks and corporate debtors, which create moral hazard Moral Hazard

The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the
. The pioneering leader of these models, writing before the East Asia crisis began, was Michael P. Dooley. [13] Others who developed the models include Chinn, Dooley, and Sona Shrestha; Craig Burnside; Martin S. Eichenbaum and Sergio Rebelo; and Aizenman. [14]

An important question to address is why the crises were so severe once they occurred, inflicting recession, bankruptcy, and poverty on much of the economy. Chang and Velasco have emphasized the post-devaluation burden of short-term dollar-denominated debt. [15] Banks and firms find that they cannot service their dollar-denominated debt after the devaluation because their revenues are primarily in local currency. James Levinsohn, Steven Berry, and Jed Friedman show that, in part because of debt problems, the poor in Indonesia indeed were hit the hardest. [16]

At the same time, there has been a rethinking of the traditional view that a country that abandons its exchange rate target has the solace of lower interest rates and a related stimulus to growth and employment. Even in looking at Western Europe Western Europe

The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO).
, Robert J. Gordon Robert J. Gordon is an economics professor at Northwestern University. He also holds the title of "Stanley G. Harris Professor in the social sciences".

He is an expert on measuring and explaining productivity growth, the causes of unemployment and airline economics.
 challenges the conventional wisdom that those who devalued de·val·ue   also de·val·u·ate
v. de·val·ued also de·valu·at·ed, de·val·u·ing also de·val·u·at·ing, de·val·ues also de·val·u·ates
1. To lessen or cancel the value of.
 in 1992-3 were rewarded with noninflationary growth. [17] In the case of East Asia, especially, the crisis victims suffered from high interest rates and sharp recessions regardless of whether they devalued early, late, or not at all.

Another topic our program addresses is contagion Contagion

The likelihood of significant economic changes in one country spreading to other countries. This can refer to either economic booms or economic crises.

An infamous example is the "Asian Contagion" that occurred in 1997 and started in Thailand.
: the tendency for a currency crisis in one emerging-market country to be followed by troubles in others far away. Such situations have now gone beyond correlations that can readily be explained by competition in export markets. For example, the contagion from Russia to Brazil in August 1998 cannot be explained easily by trade links between these two countries, nor by competition in third markets. A number of IFM IFM Institut Français de la Mode (French Fashion Institute)
IfM Institute for Micromanufacturing (Louisiana Tech University)
IFM Interface Module
IFM Instantaneous Frequency Measurement
 Program members have been studying contagion. [18]

How can crises be prevented in the future, or at least be made less frequent and less severe? Some researchers have begun to study proposals for restrictions on capital flows. Chile maintained penalties on short-term capital inflows, which appear to have succeeded in changing the composition of its inflows at least. However, Edwards warns that these penalties do not explain Chile's success. [19] Leonardo Bartolini and Drazen point out that liberalization lib·er·al·ize  
v. lib·er·al·ized, lib·er·al·iz·ing, lib·er·al·iz·es
To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . .
 of capital outflows sends a positive signal to investors and can result in increased inflows. [20] Karen K. Lewis also looks at official international restrictions on capital flows. [21]

Some proposals for modification of the international financial architecture call for a reform of multilateral institutions. [22] Work by Feldstein and Ricardo J. Caballero cab·al·le·ro  
n. pl. cab·al·le·ros
1. A Spanish gentleman; a cavalier.

2. A man who is skilled in riding and managing horses; a horseman.
 and Arvind Krishnamurthy offers some innovative ideas about the provision of international collateral by developing country borrowers. [23]

Japan and the European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the

European Community

Members of the IFM program have continued to watch the industrialized in·dus·tri·al·ize  
v. in·dus·tri·al·ized, in·dus·tri·al·iz·ing, in·dus·tri·al·iz·es
1. To develop industry in (a country or society, for example).

 world as well as the emerging markets. In the 1990s Japan found itself in a recession trap that was worse than most forecasts, while Europe entered a monetary union that so far has succeeded better than many had forecast.

The banking system played a central role in the decade-long Japanese slump, despite both the Basel capital standards agreement and the Big Bang big bang

Model of the origin of the universe, which holds that it emerged from a state of extremely high temperature and density in an explosive expansion 10 billion–15 billion years ago.
 of 1998 trying to nudge Japanese banks into the modern era. The premium that Japanese banks pay for funds helps to explain their problems. [24]

In January 1999 the European Economic and Monetary Union (EMU) was inaugurated, and the euro, its common currency, was born. NBER researchers analyzed a variety of aspects of the immediate transition to the EMU. [25] Obstfeld, Giovanni Pen, and others also examined the fundamental question for the longer term: is Europe suited to a common currency? [26] Feldstein has suggested that the EMU does not make economic sense and was instead adopted for political reasons. [27]

A number of IFM Program members have considered how the new European Central Bank European Central Bank (ECB)

Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
 (ECB See electronic code book. ) could conduct monetary policy. [28] Lars E. O. Svensson Lars E. O. Svensson is an economist on the faculty of Princeton University. He published significant research in macroeconomics, especially monetary economics, international trade and general equilibrium theory.  suggests that the ECB could target the price level, [29] Richard Portes and Helene Rey predict that the euro will rival the dollar some day as an international currency. [30] Michael B. Devereux, Charles M. Engel, and Tille consider the implications of trade being invoiced in euros. [31] Casella asks what fiscal policy might be under the European stability pact Stability Pact can mean
  1. The Stability and Growth Pact of the Economic and Monetary Union of the European Union
  2. The Stability Pact for South Eastern Europe
, and William H. Branson, Jorge Braga de Macedo de Macedo may refer to:
  • Evaristo de Macedo (born 1933), former Brazilian footballer
  • Joaquim Manuel de Macedo (1820-1882), author
  • José Agostinho de Macedo (1761-1831), Portuguese poet and prose writer
, and Jurgen von Hagen wonder about prospective policy expansion to the East. [32]

Some of the NBER research on the European economy is presented at the NBER's International Seminar on Macroeconomics (ISOM ISOM Information Systems and Operations Management
ISOM International Symposium on Optical Memory
ISOM International Society for Orthomolecular Medicine
ISOM Island South of Miami (Cuba, used when discussing cigars online) 
), which takes place each summer in a different European country. For the past several years, ISOM has been under the direction of Andrew K Andrew K is a Greek DJ and record producer. He has released over 30 records in a variety of well-respected labels including Armada, Mo-Do, Pure Substance, Vapour, Babylon Records and more. As a DJ, he has appeared in many countries across the globe. . Rose and Charles Wyplosz.

Global Economic Integration

IFM Program members have continued to investigate the extent, nature, and effects of global integration. One important new approach has been to incorporate in the analysis data on transactions among cities or provinces within the same country with data on transactions between countries. This makes it possible to identify the effects of national borders and national currencies, not just the effects of geographic separation. This approach has been used by John F. Helliwell and Ross McKitrick Ross McKitrick is a Canadian environmental economist and global warming skeptic, best known for his statistical reviews of temperature record reconstructions that purport to show dramatic recent global warming relative to history.  and Obstfeld. [33]

Some researchers take a historical perspective, looking back over the entire twentieth century. International economists can surprise people by showing that financial integration 100 years ago by many measures was as high as, or even higher than, it is today. For example, early in the century capital flows allowed greater gaps between countries' saving and investment levels than existed in the postwar period. [34] Bordo, Eichengreen, and Jongwoo Kim argue that the increase in financial integration has been greater than international economists allow; Bordo, Eichengreen, and Douglas A. Irwin argue the same for globalization globalization

Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation
 more generally, including integration with respect to trade. [35]

One method of studying international integration with respect to trade is to look at the ability of arbitrage to eliminate geographical differences in prices. Such tests on the general price level are part of the large literature on purchasing power parity Purchasing power parity

The notion that the ratio between domestic and foreign price levels should equal the equilibrium exchange rate between domestic and foreign currencies.
. [36] Tests of arbitrage are particularly interesting when they focus on prices of specific, narrowly defined commodities and examine the role of distance and transport costs between geographic locations. [37] Notwithstanding the much-touted trend of globalization, geographic distance remains a very important factor in trade, as are political barriers such as national borders and national currencies.

Flexible Exchange Rates

All of the preceding issues bear on the choice of exchange rate regime, particularly fixed versus floating rates, and on whether the question is more difficult in a world of international financial integration. [38] Both regimes have advantages, of course. Fixed rates provide a noninflationary anchor for monetary policy. Pegged regimes are characterized by lower inflation but higher variability of output. [39] Exchange rate stability also purportedly promotes international trade and investment. [40] That point is particularly relevant if the variability that shows up under a floating regime is attributable to gratuitous "noise trading," as Olivier Jeanne and Rose suggest. [41] Floating rates, on the other hand, may allow monetary independence. But how do we trade off these advantages?

Recent currency crises in emerging markets have convinced some observers that a general move toward increased exchange rate flexibility is in order. The success of some countries with currency boards or full monetary union has convinced others that rigid institutional commitments to fixed rates are the solution. A third, newly popular view is that either of the two extremes -- free floating or firm fixing -- is tenable ten·a·ble  
1. Capable of being maintained in argument; rationally defensible: a tenable theory.

, but that intermediate regimes including target zones are not. In truth, however, no single regime, whether fixed or floating, can be right for all countries. The choice depends on the specific characteristics of the country in question. [42]

On what does the choice of regime depend? Traditional theory included such criteria as openness and synchronicity synchronicity (singˈ·kr  of business cycles. Recent experience has added other criteria, emphasizing initial conditions (such as price-setting behavior, the prevalence of dollar debt, and the adequacy of reserve levels) and factors relevant for the credibility of giving monetary policy an exchange rate anchor (such as the political economy of a hyperinflationary past). [43] All of these characteristics can themselves be influenced by the choice of exchange rate regime. Countries that fix their exchange rates and thereby promote trade are more likely to qualify as an optimum currency area In economics, an optimum currency area (OCA), also known as an optimal currency region (OCR), is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.  ex post than ex ante. [44]

Meanwhile, econometricians continue to search for an explanation of the seemingly random movements in the exchange rate. Some have pursued the traditional macroeconomic approach, which looks at determinants such as fiscal policy. [45] Others have pursued the new microstructure mi·cro·struc·ture  
The structure of an organism or object as revealed through microscopic examination.


a structure on a microscopic scale, such as that of a metal or a cell
 approach. [46]

The effects of exchange rate movements on employment have been studied by a number of NBER researchers. [47] Others have asked how firms deal with exchange rate volatility. [48] Firms can hedge away exchange rate risk. [49] But hedging is not free; a risk premium separates the forward rate from the expected future spot rate. [50] The prospect of eliminating the exchange risk premium is one of the attractions of firmly fixed exchange rates.

Increasingly, these central questions of financial integration and exchange rate regimes are relevant for all countries, for emerging markets as much as for the industrialized world.

(*.) Jeffrey Frankel Jeffrey Alexander Frankel (born November 5, 1952 in San Francisco, California) is a Professor of Economics at Harvard University's Kennedy School of Government. A member of the Council of Economic Advisors under President Bill Clinton, Frankel is a noted international  is Director of the NBER'S Program on International Finance and Macroeconomics and is also a Research Associate in the NBER's Programs on International Trade and Investment, Monetary Economics and Asset Pricing. He is the James W. Harpel Professor of Capital Formation and Economic Growth at Harvard University Harvard University, mainly at Cambridge, Mass., including Harvard College, the oldest American college. Harvard College

Harvard College, originally for men, was founded in 1636 with a grant from the General Court of the Massachusetts Bay Colony.
 and a former member of the President's Council of Economic Advisers.

(1.) S. Edwards, "The Mexican Peso Crisis? How Much Did We Know? When Did We Know It?" NBER Working Paper No. 6334, December 1997, and "A Tale of Two Crises: Chile and Mexico," NBER Working Paper No. 5794, October 1996; A. M. Warner "Mexico's 1994 Exchange Rate Crisis Interpreted in Light of the Non- Traded Model," NBER Working Paper No. 6165, September 1997; J. A. Frankel and S. L. Schmukler "Country Fund Discounts, Asymmetric Information Asymmetric Information

Information available to some people but not others.

In other words, the asymmetric information is held by only one side, meaning someone is keeping a secret.
, and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic before International Investors?" NBER Working Paper No. 5714, August 1996; S. Edwards and M. A. Savastano, "The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis," NBER Working Paper No. 6516, April1998; A. O. Krueger and A. Tornell, "The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98," NBER Working Paper No. 7042 March 1999.

(2.) A Tornell, "Common Fundamentals in the Tequila tequila

Distilled liquor, usually clear in colour and unaged, made from the fermented juice of the Mexican agave plant. (See agave family.) It contains 40–50% alcohol.
 and Asian Crises," NBER Working Paper No. 7139, May 1999; T. Ito, "Capital Flows in Asia," NBER Working Paper No. 7134, May 1999.

(3.) Q. Meng and A. Velasco, "Can Capital Mobility be Destabilizing?" NBER Working Paper No. 7263, July 1999; D. Rodrik and T. van Ypersele, "Capital Mobility, Distributive dis·trib·u·tive  
a. Of, relating to, or involving distribution.

b. Serving to distribute.

 Conflict, and International Tax Coordination," NBER Working Paper No. 7150, June 1999; B. Eichengreen and A. Mody, "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment Market Sentiment

The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and price movement of the securities.

For example, rising prices would indicate a bullish market sentiment.
?" NBER Working Paper No. 6408, February 1998; V. V. Chart and P. Kehoe, "Hot Money," NBER Working Paper No. 6007, April 1997; P. Bacchetta and E. van Wincoop, "Capital Flows to Emerging Markets: Liberalization, Overshooting Overshooting

The tendency of a pool of MBS to reflect an especially high rate of prepayments the first time it crosses the threshold for refinancing, specially if two or more years have passed since the date of issue without the weighted average coupon of the pool crossing the
, and Volatility," NBER Working Paper No. 6530, April 1998.

(4.) B. Eichengreen and A. K. Rose, "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Paper No. 6370, January 1998.

(5.) W. Kim and S.-J. Wei, "Offshore Investment Funds Noun 1. investment funds - money that is invested with an expectation of profit

assets - anything of material value or usefulness that is owned by a person or company
: Monsters in Emerging Markets?" NBER Working Paper No. 7133, May 1999; and "Foreign Portfolio Investors before and during a Crisis," NBER Working Paper No. 6968, February 1999; B. Eichengreen and A. Mody, "Lending Booms; Reserves, and the Sustainability of Short-Term Debt Short-term debt

Debt obligations, recorded as current liabilities, requiring payment within the year.
: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Paper No. 7113, May 1999; R. Chang and A. Velasco, "The Asian Liquidity Crisis;" NBER Working Paper No. 6796, November 1998.

(6.) D. Rodrik and A. Velasco, "Short-Term Capital Flows," NBER Working Paper No. 7364, September 1999. J. A. Frankel and A. K. Rose ("Currency Crashes in Emerging Markets," NBER Working Paper No. 5437, January 1996, and Journal of International Economics 41, no. 3-4 (1996), pp. 351-66), found similar compositional effects on the probability of crises.

(7.) S. Edwards and M. A. Savastano, "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?" NBER Working Paper No. 7228, July 1999; F S. Mishkin, "Lessons from the Asian Crisis;" NBER Working Paper No. 7102 April 1999; B. Eichengreen, "Does Mercosur Need a Single Currency?" NBER Working Paper No. 6821, December 1998.

(8.) G. A. Calvo and C. A. Vegh, "Inflation Stabilization and BOP Crises in Developing Countries;" NBER Working Paper No. 6925, February 1999; E. G. Mendoza and M. Uribe "Devaluation Risk and the Syndrome of Exchange Rate-Based Stabilizations," NBER Working Paper No. 7014, March 1999; J. M. Campa, P. H. Kevin Chang, and J. F. Refalo, "An Options-Based Analysis of Emerging Market Exchange Rate Expectations: Brazil's Real Plan, 1994-7," NBER Working Paper No. 6929, February 1999.

(9.) T. Ito, E. Ogawa, and Y. N. Sasaki, "How Did the Dollar Peg Fail in Asia?" NBER Working Paper No. 6729, September 1998; M. D. Chinn, "On the Won and Other East Asian Currencies," NBER Working Paper No. 6671, August 1998; T. Ito, P. Isard, and S. Symansky, "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Paper No. 5979, March 1997.

(10.) M. D. Bordo and A. J. Schwartz, "Why Clashes between Internal and External Stability Goals End in Currency Crises, 1797-1994," NBER Working Paper No. 5710, June 1997; S. Radelet and J. D. Sachs, "The Onset of the East Asian Financial Crisis;" NBER Working Paper No. 6680, August 1998.

(11.) R. P. Flood and N. P. Marion, "Perspectives on the Recent Currency Crisis Literature," NBER Working Paper No. 6380, January 1998; R. P. Flood and N. P. Marion, "Speculative Attacks: Fundamentals and Self-Fulfilling Prophecies," NBER Working Paper No. 5789, October 1996; M. Obstfeld, "Destabilizing Effects of Exchange-Rate Escape Clauses," NBER Reprint No. 2168, February 1998, and "Models of Currency Crises with Self-Fulfilling Features," NBER Working Paper No. 5285, February 1997; A. Velasco, "When Are Fixed Exchange Rates Really Fixed?" NBER Working Paper No. 5842, November 1996.

(12.) G. Corsetti, P. Pesenti, and N. Roubini, "Paper Tigers? A Model of the Asian Crisis," NBER Working Paper No. 6783, November 1998, and "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Paper No. 6833, December 1998; J. Aizenman and A. Powell, "Volatility and Financial Intermediation," NBER Working Paper No. 6320, December 1997.

(13.) M. P. Dooley, "A Model of Crises in Emerging Markets," NBER Working Paper No. 6300, December 1997.

(14.) M. D. Chinn, M. P. Dooley, and S. Shrestha, "Latin America and East Asia in the Context of an Insurance Model of Currency Crises," NBER Working Paper No. 7091, April 1999; C. Burnside, M. S. Eichenbaum, and S. Rebelo, "Prospective Deficits and the Asian Currency Crisis," NBER Working Paper No. 6758, October 1998, and "Hedging and Financial Fragility in Fixed Exchange Rate Regimes," NBER Working Paper No. 7143, May 1999; J. Aizenman, "Capital Mobility in a Second Best World -- Moral Hazard with Costly Financial Intermediation," NBER Working Paper No. 6703, August 1998.

(15.) R. Chang and A. Velasco, "Financial Crises in Emerging Markets," NBER Working Paper No. 6606, June 1998, and "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Working Paper No. 7272, July 1999.

(16.) J. Levinsohn, S. Berry, and J. Friedman, "Impacts of the Indonesian Economic Crisis: Price Changes and the Poor," NBER Working Paper No. 7194, June 1999.

(17.) R. J. Gordon, "The Aftermath of the 1992 ERM (Enterprise Relationship Management) An umbrella term with many shades of meaning over the years. It may refer to the management of information from any or all of an organization's customers, suppliers, business partners and employees.  Breakup: Was There a Macroeconomic Free Lunch?" NBER Working Paper No. 6964, February 1999.

(18.) K. Forbes and R. Rigobon, "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Paper No. 7267, July 1999; A. Drazen, "Political Contagion in Currency Crises," NBER Working Paper No. 7211, July 1999; G. Corsetti, P. Pesenti, N. Roubini, and C. Tille, "Competitive Devaluations: A Welfare-Based Approach," NBER Working Paper No. 6889, January 1999; P.-R. Agenor and J. Aizenman, "Contagion and Volatility with Imperfect Credit Markets," NBER Working Paper No. 6080, July 1997; S. Edwards, "Interest Rate Volatility, Capital Controls, and Contagion," NBER Working Paper No. 6756, October 1998; P. R. Agenor, J. Aizenman, and A. Hoffmaister, "Contagion, Bank Lending Spreads, and Output Fluctuations," NBER Working Paper No. 6850, December 1998; B. Eichengreen, A. K. Rose, and C. Wyplosz, "Contagious Currency Crises," NBER Working Paper No. 5681, July 1996; R. Rigobon, "On the Measurement of the International Propagation of Shocks," NBER Working Paper No. 7354, September 1999.

(19.) S. Edwards, "Crisis Prevention: Lessons from Mexico and East Asia," NBER Working Paper No. 7233, July 1999; "Capital Inflows into Latin America: A Stop-Go Story?" NBER Working Paper No. 6441, March 1998; and "Capital Flows, Real Exchange Rates Real exchange rates

Exchange rates that have been adjusted for the inflation differential between two countries.
, and Capital Controls: Some Latin American Experiences," NBER Working Paper No. 6800, November 1998.

(20.) L. Bartolini and A. Drazen, "Capital Account Liberalization as a Signal," NBER Working Paper No. 5725, July 1997, and "When Liberal Policies Reflect External Shocks, What Do We Learn?" NBER Working Paper No. 5727, March 1998.

(21.) K. K. Lewis, "Are Countries with Official International Restrictions 'Liquidity Constrained'?" NBER Working Paper No. 5991, April 1997.

(22.) K. Rogoff, "International Institutions for Reducing Global Financial Instability," NBER Working Paper No. 7265, July 1999; A. O. Krueger, "Whither whith·er  
To what place, result, or condition: Whither are we wandering?

1. To which specified place or position:
 the World Bank and the IMF IMF

See: International Monetary Fund


See International Monetary Fund (IMF).
?" NBER Working Paper No. 6327, December 1997.

(23.) M. S. Feldstein, "Self-Protection for Emerging Market Economies," NBER Working Paper No. 6907, January 1999; R. J. Caballero and A. Krishnamurthy, "Emerging Market Crises: An Asset Markets Perspective," NBER Working Paper No. 6843, December 1998.

(24.) T. Ito and Y. N. Sasaki, "Impacts of the Basle Capital Standard on Japanese Banks' Behavior," NBER Working Paper No. 6730, September 1998; T. Ito and M. T. Melvin, "Japan's Big Bang and the Transformation of Financial Markets," NBER Working Paper No. 7247, July 1999; J. Peek and E. S. Rosengren, "Determinants of the Japan Premium: Actions Speak Louder than Words" NBER Working Paper No. 7251, July 1999.

(25.) D. S. Bates Bates   , Katherine Lee 1859-1929.

American educator and writer best known for her poem "America the Beautiful," written in 1893 and revised in 1904 and 1911.
, "Financial Markets' Assessment of the EMU," NBER Working Paper No. 6874, January 1999; M. Obstfeld, "A Strategy for Launching the Euro," NBER Working Paper No. 6233, March 1999, and "The EMU: Ready or Not?" NBER Working Paper No. 6682, August 1998; P. M. Garber, "Notes on the Role of TARGET in a Stage III Crisis," NBER Working Paper No. 6619, June 1998; C. Favero, F. Giavazzi, and L. Spaventa, "High Yields: The Spread on German Interest Rates," NBER Working Paper No. 5408, February 1998; W. H. Buiter and A. C. Sibert, "Transition Issues for the European Monetary Union European Monetary Union

An agreement by participating European Union member countries that includes protocols for the pooling of currency reserves and the introduction of a common currency.
," NBER Working Paper No. 6292, November 1997.

(26.) M. Obstfeld, "Open-Economy Macro-economics: Developments in Theory and Policy," NBER Working Paper No. 6319, December 1997; and Obstfeld and G. Peri, "Regional Nonadjustment and Fiscal Policy: Lessons for the EMU," NBER Working Paper No. 6431, February 1998.

(27.) M. S. Feldstein, "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," Journal of Economic Perspectives, 11, no. 4 (Fall 1997), pp. 23-42.

(28.) R. Dornbusch, C. A. Favero, and F. Giavazzi, "The Immediate Challenges for the European Central Bank," NBER Working Paper No. 6369, January 1998; and C. A. Favero, F. Giavazzi, and L. Flabbi, "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," NBER Working Paper No. 7231, July 1999.

(29.) L. E. O. Svensson, "Open-Economy Inflation Targeting The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page.
," NBER Working Paper No. 6545, May 1998; "Monetary Policy Issues for the Eurosystem," NBER Working Paper No. 7177, June 1999; and "Price Stability as a Target for Monetary Policy: Defining and Maintaining Price Stability," NBER Working Paper No. 7276, August 1999.

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(31.) M. B. Devereux, C. M. Engel, and C. Tille, "Exchange Rate Pass-through and the Welfare Effects of the Euro," NBER Working Paper No. 7382, October 1999.

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(36.) C. M. Engel and C.-J. Kim, "The Long-Run U.S.--U.K. Real Exchange Rate," NBER Working Paper No. 5777, September 1996; M. Obstfeld and A. M. Taylor, "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment. Heckscher's Commodity Points Revisited," NBER Working Paper No. 6053, June 1997; C. M. Engel, M. K. Hendrickson, and J. H. Rogers, "Intra-National, Intra-Continental, and Intra-Planetary PPP (Point-to-Point Protocol) The most popular method for transporting IP packets over a serial link between the user and the ISP. Developed in 1994 by the IETF and superseding the SLIP protocol, PPP establishes the session between the user's computer and the ISP using ," NBER Working Paper No. 6069, June 1997; J. M. Campa and H. C. Wolf C. Wolf is the official mascot of the Erie SeaWolves, a Minor League Baseball team in Erie, Pennsylvania. The SeaWolves are the Double A affiliate of the Detroit Tigers Major League Baseball team. C. Wolf's History
C. Wolf made his debut June 20, 1995, at Jerry Uht Park.
 "Is Real Exchange Rate Mean Reversion Mean Reversion

A strategy that involves purchasing an underperforming stock or another type of security and holding the position until the market rebounds.

 Caused by Arbitrage?" NBER Working Paper No. 6162, September 1997.

(37.) G. J. O'Connell and S.-J. Wei, "'The Bigger They Are, the Harder They Fall': How Price Differences across U.S. Cities Are Arbitraged," NBER Working Paper No. 6089, July 1997; and C. M. Engel and J. H. Rogers, "Violating the Law of One Price: Should We Make a Federal Case Out of It?" NBER Working Paper No. 7242, July 1999. O'Connell and Wei find that fixed costs fixed costs, the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation).
 of transportation are integral to an understanding of law-of one-price deviations. Engel and Rogers find that the distance between U.S. cities accounts for a significant amount of the variation in prices between pairs of cities, but that nominal price Nominal price

Price quotations on futures for a period in which no actual trading took place.
 stickiness plays an even more significant role.

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(39.) A. R. Ghosh, A.-M. Gulde, J. D. Ostry, and H. C. Wolf, "Does the Nominal Exchange Rate Nominal exchange rate

The actual foreign exchange quotation in contrast to the real exchange rate, which has been adjusted for changes in purchasing power.
 Regime Matter?" NBER Working Paper No. 5874, January 1997.

(40.) P. Bacchetta and E. Van Wincoop, "Does Exchange Rate Stability Increase Trade and Capital Flows?" NBER Working Paper No. 6704; August 1998.

(41.) O. Jeanne and A. K. Rose, "Noise Trading and Exchange Rate Regimes," NBER Working Paper No. 7104, April 1999.

(42.) J. A. Frankel "No Single Currency Regime Is Right for All Countries or at All Times," NBER Working Paper No. 7338, September 1999.

(43.) M. B. Devereux and C. M. Engel, "Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange Rate Regime," NBER Working Paper No. 6867, December 1998, and "The Optimal Choice of Exchange Rate Regime: Price-Setting Rules and Internationalized Production," NBER Working Paper No. 6992, March 1999; E. G. Mendoza and M. Uribe, "The Business Cycles of Balance-of-Payment Crises: A Revision of Mundellian Framework," NBER Working Paper No. 7045, March 1999.

(44.) J. A. Frankel and A. K. Rose, "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Paper No. 5700, August 1996, and Economic Journal, 1998.

(45.) R. H. Clarida and J. Prendergast, "Fiscal Stance and the Real Exchange: Some Empirical Estimates," NBER Working Paper No. 7077, April 1999; and M. D. Chinn, "Sectoral Productivity, Government Spending Government spending or government expenditure consists of government purchases, which can be financed by seigniorage, taxes, or government borrowing. It is considered to be one of the major components of gross domestic product. , and Real Exchange Rates: Empirical Evidence for OECD OECD: see Organization for Economic Cooperation and Development.  Countries," NBER Working Paper No. 6017, April 1997.

(46.) T. Ito, R. K. Lyons and M. T. Melvin, "Is There Private Information in the FX Market? The Tokyo Experiment," NBER Working Paper No. 5936, February 1997; M. D. D. Evans and R. K. Lyons, "Order Flow and Exchange Rate Dynamics," NBER Working Paper No. 7317, August 1999; K. M. Dominguez, "The Market Microstructure Market microstructure

The functional setup of a market.
 of Central Bank Intervention Central bank intervention

The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.
," NBER Working Paper No. 7337, September 1999.

(47.) S. Burgess and M. M. Knetter, "An International Comparison of Employment Adjustment to Exchange Rate Fluctuations," NBER Working Paper No. 5861, December 1996; J. M. Campa and L. S. Goldberg, "Employment versus Wage Adjustment and the U.S. Dollar," NBER Working Paper No. 6749, October 1998; P.-O. Gourinchas, "Exchange Rates and Jobs: What Do We Learn from Job Flows?" NBER Working Paper No. 6864, December 1998.

(48.) C. M. Engel, "A Model of Foreign Exchange Rate Indetermination," NBER Working Paper No. 5766, September 1996; and P. F. Rowland and L. L. Tesar, "Multinationals and the Gains from International Diversification International diversification

The attempt to reduce risk by investing in more than one nation. By diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce the variability of their returns.
," NBER Working Paper No. 6733, September 1998.

(49.) G. M. Bodnar and G. Gebhardt, "Derivatives Usage in Risk Management by U.S. and German Nonfinancial Firms: A Comparative Survey," NBER Working Paper No. 6705, August 1998; and S.-J. Wei, "Currency Hedging and Goods Trade," NBER Working Paper No. 6742 September 1998.

(50.) M. Obstfeld and K. Rogoff, "Risk and Exchange Rates," NBER Working Paper No. 6694; August 1998; G. Meredith and M. D. Chinn, "Long-Horizon Uncovered Interest Rate Parity Interest Rate Parity

A theory that the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.

This relationship must hold if there are to be no arbitrage opportunities.
," NBER Working Paper No. 6797, November 1998; C. M. Engel, "On the Foreign-Exchange Risk Foreign-Exchange Risk

1. The risk of an investment's value changing due to changes in currency exchange rates.

2. The risk that an investor will have to close out a long or short position in a foreign currency at a loss due to an adverse movements in exchange rates.
 Premium in Sticky-Price General Equilibrium General equilibrium theory is a branch of theoretical microeconomics. It seeks to explain production, consumption and prices in a whole economy.

General equilibrium tries to give an understanding of the whole economy using a bottom-up approach, starting with individual
 Models," NBER Working Paper No. 7067, April 1999.
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Author:Frankel, Jeffrey A.
Publication:NBER Reporter
Geographic Code:00WOR
Date:Dec 22, 1999
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