International Money and Finance / Edition 3

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International Money and Finance, Third Edition, is an invaluable resource for advanced undergraduates and postgraduates studying International Economy and Finance.

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Editorial Reviews

From the Publisher
"An exemplary textbook" Kyklos (of the previous edition)

"The authors do an exceptional job of covering this extensiverange of topics" Southern Economic Journal (of the previousedition)

"This book is unique in its thorough and up-to-date coverage ofempirical results in the literature. The policy discussions arealso well written and are nicely integrated with the presentationof the modelsaI strongly recommend it." Peter Pedroni, IndianaUniversity

"Paul Hallwood and Ronald MacDonald have written an outstandingtextbookaWith updated chapters on European monetary union,transition economies and developing countries - includingdiscussion of the East Asian problems - the result is a handbook ofencyclopedic range." Jan Toporowski, South BankUniversity

From The Critics

"An exemplary textbook" Kyklos (of the previous edition)

"The authors do an exceptional job of covering this extensive range of topics" Southern Economic Journal (of the previous edition)

"This book is unique in its thorough and up-to-date coverage of empirical results in the literature. The policy discussions are also well written and are nicely integrated with the presentation of the modelsaI strongly recommend it." Peter Pedroni, Indiana University

"Paul Hallwood and Ronald MacDonald have written an outstanding textbookaWith updated chapters on European monetary union, transition economies and developing countries - including discussion of the East Asian problems - the result is a handbook of encyclopedic range." Jan Toporowski, South Bank University

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Product Details

  • ISBN-13: 9780631204626
  • Publisher: Wiley
  • Publication date: 9/11/2000
  • Edition description: REV
  • Edition number: 3
  • Pages: 566
  • Product dimensions: 6.80 (w) x 9.80 (h) x 1.20 (d)

Meet the Author

C. Paul Hallwood is Professor of Economics at University ofConnecticut. He has authored five books and many papers within theinternational economics field, covering areas such as internationalmoney and finance, the multinational corporation, the internationaloil industry and developing economies, and the economics ofcommodity markets.

Ronald MacDonald is Professor of International Finance inthe Department of Economics at University of Strathclyde. He is theauthor/editor of several books in international money and financeand has written numerous articles in the areas of internationalfinance, macroeconomics, and financial economics.

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Table of Contents

List of Figures.

List of Tables.

Preface to the Third Edition.

Part I: Introduction:.

Part II: Some Basic Concepts in InternationalFinance:.

The exchange rate.

The balance of payments accounts.

Purchasing power parity.

Floating exchange rates: prospect and retrospect.

Exchange rate volatility.

Part III: Spot and Forward Exchange Rates: Some More BasicIdeas:.

The elasticities view of the exchange rate.

The forward exchange rate, arbitrage and pure speculation.

Covered interest parity - empirical evidence.

Uncovered interest parity - empirical evidence.

Real interest rate parity - empirical evidence.

Part IV: Income and the Balance of Payments:.

The foreign trade multiplier.

The equilibrium real exchange rate.

An early view of economic management.

The assignment problem.

The absorption approach.

Intertemporal utility maximization and the current account.

Twin deficits.

Foreign repercussions with no capital mobility.

Part V: Macroeconomics in an Open Economy: TheMundell-Fleming Model and Some Extensions:.

The "base-line" Mundell-Fleming model.

The large country case.

Insulation and the MF model.

Imperfect capital mobility and the MF model.

Regressive expectations and monetary-fiscal policy.

The J curve and regressive expectations.

Wealth effects.

Aggregate supply, the real balance effect and the exchange ratein the MF model.

Summary and conclusions.

Part VI: International Policy Coordination:.

The two-country Mundell-Fleming model and macroeconomicinterdependence.

The potential gains from policy coordination.

Dynamic games and the sustainability and reputation credibilityof international cooperation.

Some evidence on the potential benefits of coordination.

Potential impediments to policy coordination and the appropriateform of such coordination.

Part VII: Purchasing Power Parity: Theory andEvidence:.

The absolute and relative purchasing power parity concepts.

The efficient markets view of purchasing power parity.

Further interpretation of purchasing power parity.

Some further criticisms of purchasing power parity.

The empirical validity of purchasing power parity.

Concluding comments.

Part VIII: The Monetary Approach to the Balance ofPayments:.

What is so different about the monetary approach?.

The global monetarist model.

Sterilization and the reserve offset coefficient.

The international transmission of inflation: some evidence.

Part IX: The Monetary View of Exchange RateDetermination:.

The asset approach to the exchange rate.

The flex-price monetary approach to the exchange rate.

Introducing expectations.

Rational speculative bubbles.

The sticky-price monetary approach.

Currency substitution.

Empirical evidence on the monetary model.

More empirical evidence.

Empirical tests for the existence of speculative bubbles.

Concluding comments.

Part X: The Monetary Model: Further Applications - RealShocks and Exchange Regime Volatility:.


The general equilibrium monetary model.

The monetary model and exchange regime volatility.

Empirical evidence on the general equilibrium approach.

Concluding comments.

Part XI: The Portfolio Balance Approach to the Determinationof the Exchange Rate:.

The portfolio balance model.

Open market purchase of bonds: monetary policy.

An increase in the supply of domestic bonds: fiscal policy.

Asset preference shift.

Econometric evidence on the portfolio balance approach.

Summary and concluding comments.

Part XII: Spot and Forward Exchange Rates and the EfficientMarkets Hypothesis:.

Spot and forward exchange rates.

The efficient markets hypothesis and the forward market forforeign exchange.

Econometric estimation of the efficient markets hypothesis.

A risk premium story to explain why รก may not be unity.

Empirically implementing equation. 20.

Concluding comments.

Part XIII: Expectational Explanations for the Rejection ofthe Efficient Markets Hypothesis and the "News":.

Peso effects, rational speculative bubbles and econometricinference.

Technical analysis and chartism.

Survey data, expectations and risk.

Market microstructure.

The news approach to exchange rate modeling.

Empirical studies of the news approach.

The noise-trader paradigm.

Part XIV: Currency Crises and Speculative Attack:.

Recent international financial crises.

First generation speculative attack models.

Second generation models.

Econometric estimates of speculative attack models.

Microeconomic indicators.


Interest rate, foreign exchange and credit risk.

Possible policy responses.

Part XV: Exchange Rate Target Zones and 'DirtyFloating':.

Target zones.

Dirty floating.

Part XVI: The International Gold Standard: Theory andExperience:.

Credibility and exchange rate regimes.

The gold standard during the inter-war period.

Part XVII: The Dollar Standard Today and During the BrettonWoods Era:.

The Bretton Woods system to 1971.

The dollar standard.

Reserve creation and the US and world price levels.

The East Asian dollar standard.

Part XVIII : Monetary Unions:.

Benefits and costs of a monetary area: seminal ideas.

Melitz and the covariance of equilibrium real exchange ratesapproach.

Bayoumi's general equilibrium model of the optimum currencyarea.

Ad hoc benefits of a pegged exchange rate or commoncurrency.

Estimating shocks.

Fiscal federalism.

Part XIX: International Capital Flows:.

International money and capital flows.


Regulation: the Basle capital accord.

Measuring international capital mobility.

International bond markets.

Part XX: Developing Countries, Balance of Payments Adjustmentand the IMF:.

Developing country exchange rate arrangements: to peg or not topeg?.

Liberalization, the equilibrium real exchange rate and economicpolicy.

The IMF: its role.

The IMF's monetary approach to the balance of payments.

New structuralist arguments against IMF adjustment policies.

Part XXI: The Order of Liberalization in DevelopingCountries:.

Distortions and Economic Performance.

Unhappy experience with financial liberalization.

The order of liberalization.

Part XXII: Exchange Rates and Transition Economies:.

Economic reforms.

Microeconomic-macroeconomic equilibrium.

Shocks to the equilibrium real exchange rate.

The real exchange rate in asset market equilibrium.

On knowing the correct real exchange rate.

Choice of an exchange rate regime by a TE.

Part XXIII: International Debt:.

The debt problem.

Growth of international debt.

Debt and economic growth.

Capital flight.

Governmental and national foreign indebtedness.

The lenders' trap.

Some debt-reform proposals.

An international debt facility.

Part XXIV: International Monetary Reform:.

Financing or adjustment?.

Designing an international monetary system.

Yen and DM currency blocs.

Costs and benefits of flexible exchange rates.

Alternative plans for the reform of the international monetarySystem.


Author Index.

Subject Index.

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