Mundell fleming trilemma: evolution in emerging markets

This paper argues that the global monetary system has exhibited significant instability since the collapse of the Bretton Woods regime in 1971. The recent challenge for economists and policy makers is the creation of a global monetary system that offers greater exchange rate stability without sacrificing international capital mobility. This paper proposes a solution that consists of three components. First, strengthening the international financial architecture to bring stability, primarily to emerging nations. Second, eventually creating a monetary union in NAFTA and extending it to other countries of the American hemisphere to bring stability to this region a la the EMU. Third, coordinating economic policies among the U.S., EU and Japan to stabilize these three key global currencies.

Financial solidarity between member states of the European Union has a 60 years-old history going back right to the origins of the European project in the early 1950s. However, the first 20 years or so were dominated by the financing of projects in the context of rapidly rebuilding European economies. This early period has to be seen also in the broader context of the Bretton Woods system and in particular the creation of the IMF. The first severe tests to the Union's solidarity mechanisms with a macro-financial dimension came during the oil shocks which led to peaks in macroeconomic imbalances in the mid-seventies and mid-eighties. I explain the origins and motivations for the instruments for balance-of-payments assistance developed during this period. I document the evolution of European macro-financial solidarity mechanisms by examining various episodes of activation of the instrument, filling a gap in the literature on the history of European economic and financial integration. Finally, revisiting the history of European macro-financial stability tools during the period between the Bretton Woods system of fixed exchange rates and the creation of Economic and Monetary Union (EMU) can further our understanding of recently developed and reinforced financial solidarity mechanisms at the European and the global level.

The current paper analyses the similarities between the Bretton Woods system (BWS) and the Eurozone and looks into the future of the world monetary system. The gold standard, the Keynes Plan and the White Plan are identified as the most important sources of ideas that formed the BWS. Although Keynes was not particularly successful in Bretton Woods, his plan played a decisive role later on in the critique of the BWS as well as in the design of the European Monetary System. Either system was based on the concept of fixed exchange rates which were seen as more apt for international economic relations than flexible rates. In the BWS, fixed rates were seen to be achieved by coordinating economic policies of member states and by sporadic realignments of exchange rates. In the Eurozone, only policy coordination is available to fulfil this function. The favourable experience made so far with the euro may be utilised for monetary integration in other parts of the world. The Eurozone is also considered good practice for any reform of the international monetary system. Given the diverging political and economic goals of the major currency blocks, it may be questioned, however, whether the success of the euro also furthers the idea of developing a single world currency.

This article focuses on the reaction of Asean economies to international financial shocks. The crises in emerging markets at the end of the last century underlined the vulnerability of emerging Asean economies to international financial fluctuations and a lack of sustainability in their exchange rate regime. A Structural VAR model is used to analyze the efficiency of the measures adopted by these countries, after this crisis episode, to protect their economies against speculative attacks. The results reveal that the impact of the current subprime crisis on emerging Asean countries is less significant than that observed in industrialized ones.

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

Europe's contribution to the international financial system is a new currency, the euro. Economic and Monetary Union in Europe (EMU), of which the single currency is the manifestation, has emerged in the context of a complex process of interaction between globalisation and regional integration. This paper discusses the internationalisation of the euro and draws out the consequences for European securities markets, exchange rates, and international financial stability.

This paper considers how the European Union, and more specifically the euro area, can contribute to international financial stability. It sets the issues in the broader framework of financial globalization and international capital mobility. Sections 1-3 discuss globalization, international financial stability, and current threats to it - notably, potential crises in key emerging market countries and a possible hard landing for the US dollar. In that context, EMU has clearly increased internal stability in the euro area and has promoted a dynamic development of capital markets. But in some respects, monetary union may have exacerbated systemic risks. Section 4 discusses financial supervision and regulation and procedures for dealing with liquidity crises. Section 5 turns to issues raised by EU enlargement. Section 6 considers aspects of EMU and the international financial system that relate to international financial stability. It stresses the need for coherent European positions on exchange-rate policy, the international financial architecture, and the euro as an international currency.

Abstract This paper analyzes the responses of the United States and the economies of the Economic and Monetary Union (EMU) to the financial and economic crisis of 2008–2009. The crisis illuminates the fundamental structural problems within the EMU, the European Union and the United States and the scale and scope of interconnections among the world economy. The paper focuses on the reactions of the real sector to the financial disturbances in these economies. Both comparative static and dynamic methodologies are used in order to appraise the scope and pace of adjustments in response to the global crisis.

The international financial regime is undergoing a significant transition as the Bretton Woods regime weakens and new norms and principles emerge. One change is the emergence of “currency blocs” which serve to stabilize regional financial relations. This paper argues that Latin America and the U.S. are linked in an emerging dollar bloc that has created a new form of Latin American dependency. The centrality of the dollar in the financial structure of Latin America is documented, and an overview of the historical currency blocs, the sterling and franc blocs, is provided. This historical treatment provides the basis for an analysis of the mechanisms and operation of the dollar bloc and for an assessment of the current factors in its evolution. Three specific issues are investigated: the adjustments to the rules and decision-making in the dollar bloc that are currently in progress, the relation of the dollar bloc to the re-democratization of Latin America, and the international financial context provided by the European Monetary System and the growth in the yen's importance.

Can a financial crisis similar to the Asian one erupt in Europe? Our immediate answer is negative. These disturbing financial upheavals occur in “emerging” markets not in the bastions of stability that are found in Europe. The conditions that led to the financial crises in Asia are just not present in Europe…

This article analyses the emergence of the present international monetary system. We first go into the establishment of the Bretton Woods system in the 1940s, its functioning in the post-war period and its final breakdown in 1973. We then analyse the ensuing system of floating exchange rates, looking also at the impact of the emerging countries, especially in Asia. We further discuss the interrelationship between the international monetary system and the present financial crisis.JEL Classification Numbers E42, E60, F32, F33, F42, N10

In this paper, I survey the issue of exchange rate regime choice from the perspective of both the industrial and emerging economies taking an historical perspective. I first survey the theoretical issues beginning with a taxonomy of regimes. I then examine the empirical evidence on the delineation of regimes and their macroeconomic performance. The penultimate section provides a brief history of monetary regimes in industrial and emerging economies. The conclusion considers the case for a managed float regime for today's emerging economies.

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.

After redirecting their economies away from central planning to open-market systems during the past decade, economic policy makers in the transforming economies of Central Europe (CE) are now preparing for accession to full membership in the European Union. Among other preparatory tasks for inte gration with the European Union, these economies need to achieve a high de gree of economic stability, including stability of their currencies. They further need to develop a strong institutional foundation of their financial markets that would allow them to cushion the impacts of financial disturbances emanating from world financial markets. The key investigative question of this study is the assessment of sensitivity of Hungarian, Polish and Czech exchange rates in U.S.-dollar terms to fluc tuations of the German mark value in U.S. dollars. A close proximity of these exchange rates would imply a tighter link between Central European and EU currencies. Specifically, the study implies a gradually expanding connection of Central Europe's exchange rates to the German mark and, after January 1999, to the euro (EUR). A closer integration with the EU financial system is indispensable for the development of an effective cushion against the contagion effects of financial crises in emerging market economies. This study shows that the

Preface - Introduction and Major Conclusions E.S.Phelps - Trade Balance Patterns as Global General Equilibrium: The Seventeenth Approach to the Balance of Payments R.Mundell - PART 1: DOMESTIC ECONOMIC POLICY AND TRADE BALANCE - The Real Exchange Rate Under Alternative Nominal Exchange Rate Regimes E-M.Claassen - The Economic Effects of Expected Fiscal Policy in Small Open Economies J.Schr der - The 'Pass-Through Puzzle': The Missing Prince from Hamlet J.N.Bhagwati - PART 2: INTERDEPENDENCE BETWEEN AREAS AND BALANCES OF PAYMENTS - International Economic Interdependence and Trade Balances L.Paganetto - A Framework to Develop Measures of Interdependence and Protectionism P.L.Scandizzo - North-North and North-South Debt Crises and the Role of Trade Adjustments P.C.Padoan - Latin-American Debt, US Role in the Transmission of North-South Linkages and World Trade C.W.Reynolds - The Unified European Market and Trade with Latin America: Emargination or Development? M.Bagella - PART 3: MARKETS, MONETARY AND FISCAL POLICY, INTERDEPENDENCE AND INTERNATIONAL COORDINATION OF ECONOMIC POLICIES - Exchange-Rate Regimes and the Desirability of International Cooperation C.Carraro & F.Giavazzi - Prices and Exchange Rates: What Theory Needs to Explain A.Giovannini - International Economic Coordination from Bretton Woods to the G5/G7 Meetings of the 80s A.Colombo - International Economic Interdependence and World Income Distribution G.Palmerio - Evaluation or Actual Mechanisms Worked for External Adjustments, 1985-1988 M.Yoshitomi - Cooperation in Managing the Dollar, 1985-1987: Interventions in Foreign Exchange Markets and Interest Rates E.Gaiotti, P.Giucca & S.Micossi - EMS Membership under Real Exchange Rate Appreciation: Recent Trends in Italian Trade R.de Luzenberger & C.Imbriani - Deficit and Surplus Forever? S.Marris - Index