TY  - JOUR
AU  - Macedo,Jorge Braga de
TI  - Trade and Financial Interdependence Under Flexible Exchange Rates:  The Pacific Area
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1517
PY  - 1986
Y2  - April 1986
UR  - http://www.nber.org/papers/w1517
L1  - http://www.nber.org/papers/w1517.pdf
N1  - Author contact info:
Jorge Braga de Macedo
Universidade Nova de Lisboa
Faculty of Economics
Campus Campolide
1099-032 Lisbon
PORTUGAL
Tel: +351-213630778
Fax: +351-213631460
E-Mail: jbmacedo@fe.unl.pt
AB  - This paper analyses policy interdependence under flexible exchange rates and its implications for middle-income countries in the Pacific area. In the first part of the paper, the consequences of strategic behavior among industrial countries are illustrated by means of a simple diagram. It is argued that in the absence of incentives to coordinate macroeconomic policies among major countries, exchange rates will tend to be volatile. Evidence on the world value of the dollar in the flexible rate period is then presented and interpreted.The second part describes exchange rate policies in the Pacific area. It is found that the widespread policy of pegging to the U.S. dollar has implied occasional large devaluations against the numeraire (Korea, Taiwan, Thailand, Philippines and Indonesia). An alternative, which requires higher Pacific trade and financial interdependence than the one prevailing during the last decade, would be a joint float along the lines of the policies seemingly pursued by Malaysia and Singapore.The two-country macroeconomic model presented in the Appendix can be used to assess the costs and benefits of policy coordination both at the world and at the regional level.
ER  -