TY - BOOK AU - Pilbeam,Keith TI - International finance SN - 1403948372 (paper) SN - 978140394 AV - HG3881 .P55 PY - 2006/// CY - Houndmills, Basingstoke, Hampshire, New York PB - Palgrave Macmillan KW - International finance N1 - includes index; part 1 The Balance of Payments and Macroeconomic Policy in an Open Economy -- 1 The Foreign Exchange Market 3 -- 1.2 Exchange rate definitions 5 -- 1.3 Characteristics and participants of the foreign exchange market 6 -- 1.4 Arbitrage in the foreign exchange market 8 -- 1.5 The spot and forward exchange rates 9 -- 1.6 Nominal, real and effective exchange rates 9 -- 1.7 A simple model of the determination of the spot exchange rate 13 -- 1.8 Alternative exchange rate regimes 17 -- 1.9 The determination of the forward exchange rate 20 -- 1.10 The interaction of hedgers, arbitrageurs and speculators 24 -- 2 The Balance of Payments 27 -- 2.2 What is the balance of payments? 28 -- 2.3 Collection, reporting and presentation of the balance of payments statistics 28 -- 2.4 Balance of payments accounting and accounts 29 -- 2.5 An overview of the sub-accounts in the balance of payments 30 -- 2.6 Recording of transactions in the balance of payments 32 -- 2.7 What is meant by a balance of payments surplus or deficit? 34 -- 2.8 Alternative concepts of surplus and deficit 34 -- 2.9 Do the record United States current account deficits matter? 36 -- 2.10 Some open economy identities 42 -- 2.11 Open economy multipliers 45 -- 3 Elasticity and Absorption Approaches to the Balance of Payments 52 -- 3.2 The elasticity approach to the balance of payments 53 -- 3.3 Empirical evidence on import and export demand elasticities 56 -- 3.4 The pass-through effect of a depreciation or appreciation 60 -- 3.5 The absorption approach 61 -- 3.6 The effects of a devaluation on national income 62 -- 3.7 The effects of a devaluation on direct absorption 63 -- 3.8 A synthesis of the elasticity and absorption approaches 66 -- 4 Macroeconomic Policy in an Open Economy 69 -- 4.2 The problem of internal and external balance 70 -- 4.3 The Mundell-Fleming model 72 -- 4.4 Derivation of the IS schedule for an open economy 73 -- 4.5 Derivation of the LM schedule for an open economy 75 -- 4.6 Derivation of the BP schedule for an open economy 76 -- 4.7 Equilibrium of the model 79 -- 4.8 Factors shifting the IS-LM-BP schedules 79 -- 4.9 Internal and external balance 81 -- 4.10 Internal and external balance under fixed exchange rates 84 -- 4.11 Internal and external balance under floating exchange rates 85 -- 4.12 A small open economy with perfect capital mobility 87 -- 4.13 The principle of effective market classification 92 -- 4.14 Limitations of the Mundell-Fleming model 95 -- 5 The Monetary Approach to the Balance of Payments 98 -- 5.2 A simple monetary model 99 -- 5.3 The monetarist concept of a balance of payments disequilibrium 104 -- 5.4 The effects of a devaluation 105 -- 5.5 A monetary exchange rate equation 106 -- 5.6 A money supply expansion under fixed exchange rates 108 -- 5.7 A money supply expansion under floating exchange rates 110 -- 5.8 The effects of an increase in income under fixed exchange rates 112 -- 5.9 The effects of an increase in income under floating exchange rates 114 -- 5.10 An increase in foreign prices under fixed exchange rates 115 -- 5.11 An increase in foreign prices under floating exchange rates 116 -- 5.12 Implications of the monetary approach 118 -- 5.13 Empirical evidence on the monetary approach 119 -- 5.14 Criticisms of the monetary approach 120 -- Part 2 Exchange Rate Determination: Theory, Evidence and Policy -- 6 Purchasing Power Parity and Floating Exchange Rate Experience 125 -- 6.2 Purchasing power parity theory and the law of one price 126 -- 6.3 Absolute and relative PPP 126 -- 6.4 A generalized version of PPP 128 -- 6.5 Measurement problems in testing for PPP 129 -- 6.6 Empirical evidence on PPP 130 -- 6.7 Summary of empirical evidence on PPP 135 -- 6.8 Explaining the poor performance of purchasing power parity theory 139 -- 6.9 The Balassa-Samuelson model 141 -- 6.10 Per capita income levels, the relative sizes of economies and the importance of PPP estimates 143 -- 7 Modern Models of Exchange Rate Determination 147 -- 7.2 Asset prices 148 -- 7.3 Uncovered interest rate parity 149 -- 7.4 The monetary models of exchange rate determination 152 -- 7.5 The flexible-price monetary model 152 -- 7.6 The Dornbusch sticky-price monetarist model 154 -- 7.7 A simple explanation of the Dornbusch model 155 -- 7.8 A formal explanation of the Dornbusch model 157 -- 7.9 Derivation of the goods-market equilibrium schedule 158 -- 7.10 Derivation of the money-market equilibrium schedule 159 -- 7.11 A money supply expansion and exchange rate 'overshooting' 162 -- 7.12 Importance of the sticky-price monetary model 163 -- 7.13 The Frankel real interest rate differential model 164 -- 7.14 Implications of the monetary views of exchange rate determination 166 -- 7.15 Allowing for imperfect substitutability between domestic and foreign bonds 169 -- 7.16 A synthesis portfolio balance model 172 -- 7.17 The importance of the portfolio balance model 174 -- 8 The Portfolio Balance Model 178 -- 8.2 The concept of a risk premium 179 -- 8.3 Different types of risk 181 -- 8.4 A portfolio balance model 183 -- 8.5 Derivation of the asset demand functions 186 -- 8.6 Equilibrium of the model 187 -- 8.7 The effects of a foreign exchange operation 188 -- 8.8 The effects of an open market operation 189 -- 8.9 The effects of a sterilized foreign exchange operation 190 -- 8.10 A comparison of an FXO, OMO and SFXO 192 -- 8.11 The dynamics of the model 193 -- 8.12 The effects of a change in risk perceptions 194 -- 8.13 Money versus bond-financed fiscal expansion 195 -- 8.14 The risk premium, imperfect and perfect substitutability 198 -- 9 Empirical Evidence on Exchange Rates 202 -- 9.2 What is an efficient market? 203 -- 9.3 Exchange market efficiency tests 204 -- 9.4 Alternative tests of the efficient market hypothesis 209 -- 9.5 Summary of findings on exchange market efficiency 210 -- 9.6 Empirical tests of exchange rate models 211 -- 9.7 Exchange rate models: a forecasting analysis 213 -- 9.8 Explaining the poor results of exchange rate models 216 -- 9.9 The 'news' approach to modelling exchange rates 218 -- 9.10 The longer-run predictability of exchange rate movements 221 -- 9.11 Modelling exchange rate expectations 225 -- 9.12 Empirical tests of different expectations mechanisms 227 -- 9.13 Alternative approaches to modelling exchange rates: the role of chartists and fundamentalists 228 -- 10 Fixed, Floating and Managed Exchange Rates 235 -- 10.2 The case for fixed exchange rates 236 -- 10.3 The case for floating exchange rates 238 -- 10.4 The modern evaluation of fixed and flexible exchange rate regimes 242 -- 10.5 Specification of the objective function 242 -- 10.6 The model 243 -- 10.7 Determining equilibrium 245 -- 10.8 Money demand shock 247 -- 10.9 Aggregate demand shock 248 -- 10.10 Aggregate supply shock 249 -- 10.11 Managed floating 252 -- Part 3 The Postwar International Monetary System -- 11 The International Monetary System 261 -- 11.2 The Bretton Woods system 263 -- 11.3 Features of the system 263 -- 11.4 A brief history of the Bretton Woods system 265 -- 11.5 Why did the Bretton Woods system break down? 268 -- 11.6 The post-Bretton Woods era 273 -- 11.7 The Jamaica Conference of 1976 277 -- 11.8 The Snake and the EMS 278 -- 11.9 The second oil shock 279 -- 11.10 The dazzling dollar, 1980-85 279 -- 11.11 From Plaza to Louvre and beyond 280 -- 11.12 Currency turmoil and crises post-1990 281 -- 11.13 The present exchange rate system 289 -- 11.14 The bipolar view of the international monetary system: which exchange rate regime is best? 289 -- 11.15 Reform of the international monetary system 295 -- 11.16 The Williamson target zone proposal 295 -- 11.17 The McKinnon global monetary target proposal 295 -- 11.18 The Tobin foreign exchange tax proposal 296 -- 11.19 Reform of the international financial architecture 297 -- 12 The Eurocurrency and Eurobond Markets 304 -- 12.2 Participants in the Eurocurrency and Eurobond markets 306 -- 12.3 The origins and development of the Eurocurrency market 306 -- 12.4 The characteristics of the Eurodollar market 308 -- 12.5 The competitive advantage of Eurobanks 309 -- 12.6 The coexistence of domestic and Eurobanking 310 -- 12.7 The creation of Eurodollar deposits and loans 310 -- 12.8 The pros and cons of the Eurocurrency markets 312 -- 12.9 Euromarkets and government regulation and policy 313 -- 12.10 The international capital market and the Eurobond market 314 -- 12.11 The origins and development of the Eurobond market 314 -- 12.12 Typical features of a Eurobond 315 -- 12.13 Control and regulation of the Eurobond market 316 -- 12.14 The management of a Eurobond issue 318 -- 12.15 Innovations in the Eurobond market 320 -- 13 Currency Derivatives: Futures, Options and Swaps 323 -- 13.2 The growth of derivative markets 324 -- 13.3 Exchange-traded futures and options contracts 325 -- 13.4 Currency futures and currency forwards 326 -- 13.5 The use of currency futures for hedging purposes 328 -- 13.6 The symmetry of profit/losses on futures/forward positions 330 -- 13.7 The pricing of currency futures 331 -- 13.8 Currency options 332 -- 13.9 A currency option versus a forward contract for hedging 335 -- 13.10 A currency option versus a forward for speculating 336 -- 13.11 The pricing of currency options 339 -- 13.12 Intrinsic value and time value 340 -- 13.13 The distribution of the option premium between time and intrinsic value 341 -- 13.14 The Garman and Kohlhagen option-pricing formula 34. 13.15 A numerical example of the Garman-Kohlhagen formula 347 -- 13.16 Problems with the currency option-pricing formula 349 -- 13.17 The over-the-counter market in options 350 -- 13.18 The swaps market 350 -- 13.19 Potential currency swap scenarios 351 -- 13.20 A currency swap agreement 352 -- 13.21 Distinguishing characteristics of the swap market from the forward and futures markets 354 -- 14 International Macroeconomic Policy Coordination 358 -- 14.2 What is meant by international policy coordination? 359 -- 14.3 Why does the need for international policy coordination arise? 360 -- 14.4 The benefits from international policy coordination 361 -- 14.5 A game theory demonstration of the gains from coordination 366 -- 14.6 Other potential benefits from coordination 367 -- 14.7 The potential for coordination to make countries worse off 368 -- 14.8 Estimates of the benefits and losses from international policy coordination 369 -- 14.9 Problems and obstacles to international policy coordination 372 -- 15 The International Debt Crisis 377 -- 15.2 The low and middle-income developing countries 378 -- 15.3 Characteristics of typical middle-income developing countries 379 -- 15.4 The economics of developing country borrowing 380 -- 15.5 Different types of capital inflows into developing countries 381 -- 15.6 Measures of indebtedness 382 -- 15.7 Background and origins of the debt crisis 384 -- 15.8 The emergence of the debt crisis 385 -- 15.9 The Mexican moratorium 387 -- 15.10 The dimensions of the debt crisis 388 -- 15.11 A supply and demand framework for analysing the debt crisis 389 -- 15.12 The economics of default 391 -- 15.13 The role and viewpoints of the actors in the debt crisis 393 -- 15.14 The management of the debt crisis 395 -- 15.15 An overall evaluation of the debt-crisis management 404 -- 15.16 Post-Brady Plan crises in three of the countries 406 -- 16 Economic and Monetary Union in Europe 409 -- 16.2 The Snake in the Tunnel 410 -- 16.3 The background to the European Monetary System 411 -- 16.4 The Exchange Rate Mechanism 412 -- 16.5 The European Currency Unit and its role as an indicator of divergence 413 -- 16.6 Financing facilities and monetary cooperation 415 -- 16.7 An assessment of the European Monetary System 416 -- 16.8 The EMS as an anti-inflation zone 418 -- 16.9 Intervention policy in the EMS 422 -- 16.10 The economic performance of ERM and non-ERM countries 423 -- 16.11 What is meant by economic and monetary union? 423 -- 16.12 Benefits of Economic and Monetary Union 425 -- 16.13 Costs of Economic and Monetary Union 427 -- 16.14 A history of the road to European Monetary Union 430 -- 16.15 The Maastricht Treaty 433 -- 16.16 An evaluation of the Maastricht criteria 434 -- 16.17 The Stability and Growth Pact 436 -- 16.18 The changeover to the single currency 436 -- 16.19 The performance of the euro in the foreign exchange market 438 -- 16.20 The eurosystem 438 -- 16.21 The Exchange Rate Mechanism II 442 -- 16.22 The accession countries and EMU 444 -- 17 Currency Crises and the East Asian Financial Crisis 450 -- 17.2 First-generation models of currency crises 451 -- 17.3 Second-generation models of currency crises 455 -- 17.4 Third-generation and other models of currency and financial crises 457 -- 17.5 The run-up to the Asian crisis 460 -- 17.6 The macroeconomic fundamentals 460 -- 17.7 The role of external factors in the crisis 466 -- 17.8 The role of the financial system 467 -- 17.9 The immediate causes of the crisis 469 -- 17.10 An analysis of the crisis 473 -- 17.11 The IMF handling of the crisis 475 -- 17.12 An evaluation of the IMF programmes 477 -- 17.13 The crisis and post-crisis performance of the economies 478 -- 17.14 Early-warning systems 479 ER -