Table Of ContentExchange 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
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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.
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All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
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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
