The Role of Exchange Rate Movements in Transmitting International Disturbances

  • James M. Boughton
  • Richard D. Haas
  • Paul R. Masson
Part of the Studies in Banking and International Finance book series (SBIF)


The post-war period has been characterised by a high degree of interdependence among the industrial countries. Not only have policy changes in the large countries (most notably the very broad swings in monetary and fiscal policies in the United States) had important repercussions on other countries, there have also been large external shocks (especially the massive increases and subsequent decline in oil prices) that have affected individual countries quite differently and that thereby have altered the economic relationships among them. Since the advent of generalised exchange rate floating in 1973, shifts in exchange rates among industrial countries have come to play a central role in bringing about the required adjustment to such shocks. This paper builds on a large theoretical literature and a more limited empirical literature in order to try to clarify that role.


Exchange Rate Monetary Policy Fiscal Policy Real Exchange Rate Money Demand 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. ARGY, V. and SALOP, J. (1979) ‘Price and Output Effects of Monetary and Fiscal Policy Under Flexible Exchange Rates’, IMF Staff Papers, 26:224–56.CrossRefGoogle Scholar
  2. BOUGHTON, J. M., HAAS, R. D., MASSON, P. R. and ADAMS, C. (1986) ‘Effects of Exchange Rate Changes in Industrial Countries’, in IMF, Staff Studies for the World Economic Outlook, Chapter 4.Google Scholar
  3. BRANSON, W. and BUITER, W. (1983) ‘Monetary and Fiscal Policy with Flexible Exchange Rates’, in Bhandari, J. and Putnam, B. (eds) Economic Interdependence and Flexible Exchange Rates (Cambridge: MIT Press) 251–85.Google Scholar
  4. BRANSON, W. and ROTEMBERG, J. (1980) ‘International Adjustment with Wage Rigidity’, European Economic Review, 13: 309–32.CrossRefGoogle Scholar
  5. BRUNO, M. and SACHS, J. (1985) Economics of Worldwide Stagflation (Cambridge: Harvard University Press).CrossRefGoogle Scholar
  6. BRYANT, R. et al. (eds) (1987) Empirical Macroeconomics for Interdependent Economies (Washington, D.C.: The Brooking Institution) 1987.Google Scholar
  7. BUITER, W. (1984) ‘Fiscal Policy in Open, Interdependent Economies’, NBER, Working Paper no. 1429.Google Scholar
  8. CHAN-LEE, J. H. and KATO, H. (1984) ‘A Comparison of Simulation Properties of National Econometric Models’, OECD Economic Studies, 2 (Paris: OECD).Google Scholar
  9. CORDEN, W. M. (1985) ‘Macroeconomic Policy Interaction under Flexible Rates: A Two-country Model’, Economica, 52:9–24.CrossRefGoogle Scholar
  10. CORDEN, W. M. and TURNOVSKY, S. (1983) ‘Negative International Transmission of Economic Expansion’, European Economic Review, 20:289–310.CrossRefGoogle Scholar
  11. DORNBUSCH, R. (1976) ‘Expectations and Exchange Rate Dynamics’, Journal of Political Economy, 84: 1161–76.CrossRefGoogle Scholar
  12. FLEMING, J. M. (1962) ‘Domestic Financial Policies under Fixed and Floating Exchange Rates’, IMF Staff Papers, 9: 369–79.CrossRefGoogle Scholar
  13. HAAS, R. D. and MASSON, P. R. (1986) ‘MINIMOD: Specification and Simulation Results’, IMF Staff Papers, 33:231–253.Google Scholar
  14. HAMADA, K. and SAKURAI, M. (1978) ‘International Transmission of Stagflation under Fixed and Flexible Exchange Rates’, Journal of Political Economy, 86:877–95.CrossRefGoogle Scholar
  15. HELLIWELL, J. F. and PADMORE, T. (1985) ‘Empirical Studies of Macroeconomic Independence’, in Jones, R. W. and Kenen, P. B. (eds) Handbook of International Economics (Amsterdam: North-Holland) vol 2, chapter 21.Google Scholar
  16. KNIGHT, M. D. and MASSON, P. R. (1988) ‘Fiscal Policies, Net Saving and Real Exchange Rates: The United States, the Federal Republic of Germany and Japan’, in Frenkel, J. (ed.) International Aspects of Fiscal Policies (Chicago: University of Chicago Press; NBER).Google Scholar
  17. LAURSEN, S. and METZLER, L. A. (1950) ‘Flexible Exchange Rates and the Theory of Employment’, Review of Economics and Statistics, 32:281–99.CrossRefGoogle Scholar
  18. LUCAS, R. E. (1976) ‘Econometric Policy Evaluation: A Critique’, in Brunner, K. and Meltzer, A. H. (eds) The Phillips Curve and Labor Markets (Amsterdam: North-Holland) 19–46.Google Scholar
  19. MASSON, P. R. and BLUNDELL-WIGNALL, A. (1985) ‘Fiscal Policy and the Exchange Rate in the Big Seven: Transmission of U.S. Government Spending Shocks’, European Economic Review, 28:11–42.CrossRefGoogle Scholar
  20. MEADE, J. (1951) The Theory of International Economic Policy, vol I, The Balance of Payments (London: Oxford University Press).Google Scholar
  21. MUNDELL, R. (1962) ‘The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability’, IMF Staff Papers, 9:70–79.CrossRefGoogle Scholar
  22. MUSSA, M. (1979) ‘Macroeconomic Interdependence and the Exchange Rate Regime’, in Dornbusch, R. and Frenkel, J. (eds) International Economic Policy (Baltimore: Johns Hopkins University Press) 160–204.Google Scholar
  23. PENATI, A. (1983) ‘Expansionary Fiscal Policy and the Exchange Rate: A Review’, IMF Staff Papers, 30:542–69.CrossRefGoogle Scholar
  24. SACHS, J. (1979) ‘Wages, Profits and Macroeconomic Adjustment: A Comparative Study’, Brookings Papers on Economic Activity, 2:269–319.CrossRefGoogle Scholar
  25. SACHS, J. and WYPLOSZ, C. ‘Real Exchange Rate Effects of Fiscal Policy’, Economica (forthcoming).Google Scholar
  26. SHAFER, J. R. and LOOPESKO, B. E. (1983) ‘Floating Exchange Rates After Ten Years’, Brookings Papers on Economic Activity, 1:1–70.CrossRefGoogle Scholar
  27. US COUNCIL OF ECONOMIC ADVISERS (1984) Annual Report (February).Google Scholar
  28. YOSHITOMI, M. (1984) ‘The Insulation and Transmission Mechanisms of Floating Exchange Rates Analyzed by the EPA World Econometric Model’, in the Proceedings of the EPA International Symposium on The Mechanism for Transmission of and Insulation from Economic Disturbances under Floating Exchange Rates — Comparisons between Theories and Multipliers of the EPA World Econometric Model (Tokyo: Economic Planning Agency).Google Scholar

Copyright information

© Donald R. Hodgman and Geoffrey E. Wood 1989

Authors and Affiliations

  • James M. Boughton
  • Richard D. Haas
  • Paul R. Masson

There are no affiliations available

Personalised recommendations