International Economics: Policy Approach SECOND EDITION
MORDECHAI E. KREININ Michigan State University
HARCOURT BRACE JOVANOVICH, INC. New York
Chicago
San Francisco
Atlanta
Contents
1. ^Foreign Trade in the American Economy.
1
Part 1 International Financial Relations
2.
Introduction: The Alleged Mystique of International Finance
7
The Balance of International Payments
n
The Meaning of Deficit and Surplus 11 Uses and Misuses of Balance-of-Payments Statistics
3.
4
\ 18
The International Financial System and How It Functions
26
Market-Determined Exchange Rates 27 Exchange Stabilization under the Gold Standard 31 Exchange Stabilization under the Bretton Woods System: 1944 to 1973 33 Market Forces and the Determination of Fixed Exchange Rates 35 The Foreign Exchange Market 38 The Role of the Dollar in the Bretton Woods System 44 The International Currency System Since March 1973 50 xi
Contents
4.
Balance-of-Payments Adjustment Policies under Fixed Exchange Rates Short-Run Imbalances 56 "Automatic" Processes 58 Summary of the "Automatic" Balance-of-Payments Adjustment 79 Government Policy 80 Foreign Repercussions 87 The Balance of Payments in the Context of General Policy Objectives 91
5.
Exchange-Rate Adjustment
97
Relative Price Effect 98 Domestic Income and Price Effects 109 Redistribution of Domestic Resources 111 Another View of Devaluation—The Absorption Approach 112 A Third Approach—Emphasis on Money 115 Summary 116 Balance-of-Payments Adjustment under Fluctuating Exchange Rates 120 6.
Further Analysis of the Adjustment Process and Some Unanswered Questions v Domestic Policies 127 Exchange-Rate Adjustment
7.
126
131
Exchange Control and Currency Inconvertibility
13E
Exchange Control 135 Bilateral Clearing Agreements 140 Concepts of Currency Convertibility 142 The European Payments Union (EPU) 143 Historical Survey 146 8.
Steps Taken to Increase International Liquidity Ad Hoc Measures 156 Gold Policy 157 Special Drawing Rights 161