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The article investigates the monetary and fiscal policy under fixed and flexible exchange rates in the inter-run. One of the article's findings is that when the foreign interest rate is less than or equal to growth rate, fiscal expansion causes output to increase by at least as much under flexible rates as under fixed. Another finding was when domestic and foreign interest rates and the rate of growth of effective labor differ, then monetary and fiscal policy have uncertain effects on the balance of payments under fixed rates, and the exchange rate under flexible rates.

The author comments on the paper "Private and Official International Money: The Case for the Dollar," by R. I. McKinnon, concerning fixed exchange rates. He states that the United States has no balance-of-payments constraints as U.S. policy conduct does not consider it relevant whether the world is on a fixed or flexible system. He suggests that reserve outflows will result from excess credit expansion, and that the U.S. deficit appears to be endogenous. He states that the U.S. needs to maintain stable growth with a minimum of inflation in order for fixed rate systems to operate successfully. He claims that the U.S. dollar would be international money even under flexible exchange rates.

The article focuses on monetary policy and exchange-rate flexibility. It states that it is best to view exchange-rate policy as one facet of the monetary policy of a country. It mentions that as of 1971, the U.S. dollar acted as an international standard for currency. It comments on gold standards and the unimportance of gold in determining relative currency values. It mentions that the trade-off between increases in the supply of money and decreases in interest rates is fading in bond markets, with bond holders demanding and receiving premiums for expected rates of price inflation. It states that fixed exchange rates cannot handle longer-run secular imbalances and suggests that they need to be distinguished from short-run cyclical instability.

The article presents information on the relation between economic growth and a variety of monetary variables, by means of cross-section data comprising 43 countries for periods from five to ten years. The author explains that monetary variables include international assets of the banking system in relation to foreign trade, to money, and the international reserve position. The author states that the real growth of the gross national product each year is an unstable variable that can become negative for some countries.

In an unstable economy, expectations of changes in price level and rate of exchange play a significant role in motivating the economic behavior of both households and firms. Several econometric studies attempted to predict future expectations on the basis of past observations. Such studies, however, are crucially dependent on the assumptions (1) that there has been a relationship between past performance and expectations, and (2) that the nature of this relationship is known. Another method for the estimation of expectations is the one which derives these expectations on the basis of the price structure of future markets. However, an examination of specific commodities traded on future markets does not provide meaningful estimates, since their future prices reflect, among other things, expected changes in relative prices. This problem can be circumvented by referring to future interest rates which can be derived from the market price structure of financial assets. This paper sets out the theoretical relationship between yields on unlinked and linked bonds, showing that it reflects market expectations of future rates of change in price level and exchange rate. A model is then used to show theoretically that it is possible to derive estimations of market expectations regarding such future rates of change by comparing the yields of unlinked bonds with the yields of bonds linked to the price level and the foreign exchange rate respectively, provided these bonds are identical in all other respects. [ABSTRACT FROM AUTHOR]

Investigates the link between the U.S. and foreign interest rates in a system of pegged exchange rates. Organizations the control bank reserve aggregates; Examination of the argument that the Eurodollar market tends to narrow international interest rate differentials; Effects of official open market operations in the Eurodollar market.

This article formulates a more appropriate dynamic analysis of the flexible exchange rate system. The problem with the current dynamic analysis of the flexible exchange rate system lies in excluding the capital flow from the dynamic adjustment mechanism for the interest rate, not in following the liquidity preference theory. The closed-economy liquidity preference theory can be suitably modified and extended by taking into account the external influence on the domestic interest rate. Author and economist Herschel I. Grossman has developed a general model of multimarket disequilibrium. He concluded that the quantity theory, the liquidity preference theory, and the loanable funds theory are all special cases of his more general model. Grossman's conclusion follows from his novel proposition that the appropriate measures of the market pressures for changes in the market clearing prices are each functionally related to all the excess demands in the system. In the present context, interest rate, income, and exchange rate are all affected by the excess demands for goods and services, money, foreign exchange, and bonds. Thus, in light of the Grossman concept, the dynamic equation is unrealistic because it shuts off the spillover effects of the goods, exchange, and bond markets, and consequently bars the capital flow from influencing the interest rate. However, without knowing the empirical values of the various parameters and coefficients, unambiguous conclusions could not be derived from the Grossman-type formulations.

As the arguments favoring increased policy attention to the money stock have gained acceptance, the ability of the Federal Reserve to control the money stock has become a more prominent issue. The simple theoretical model presented earlier in this paper demonstrates that imprecise monetary control tends to aggravate the instability of both income and interest rates. In order to present a broad view of the control problem an effort has been made to analyze all of the major sources of control errors and construct as comprehensive a list of reforms as possible. While analysis has been concentrated on the technical aspects of the proposed reforms, it must be recognized that implementation of reform must await analysis of the entire range of economic effects of the reforms. Since extremely accurate control seems possible within the present institutional framework, the proposed reforms do not go outside it. For example, in designing reforms, we have ignored the fact that a system of 100 percent reserve requirements would eliminate disturbances arising from fractional reserve banking, and that freely flexible foreign exchange rates would protect the domestic money stock from foreign influences. The improvement of monetary control calls for separate reforms no one of which can, by itself, solve the control problem. And so, in the order of the discussion in the paper, here is the reform shopping list: (1) Eliminate reserve requirements against Treasury deposits in commercial banks. (2) Require all nonmember banks to adhere to the Federal Reserve reserve requirements specified for member banks. (3) If Mt is accepted without qualification as the definition of money for policy purposes, eliminate reserve requirements on time and savings deposits. (4) Abandon lagged reserve requirements in favor of contemporaneous reserve requirements. (5) Amend regulations and invest in additional data processing equipment to reduce Federal Reserve float to the greatest extent... [ABSTRACT FROM AUTHOR]

The article describes a diagrammatic method in analyzing the relationship between income variations and international balance of payments. The author makes the following assumptions on the effects of income variations to formulate his method: 1) constancy of all prices, including foreign exchange rates and interest rates 2) constancy of all propensities relating income components to income - specifically, the propensities to consume domestic goods, to import, and to invest. It is also assumed that imports consist entirely of consumption goods, in order to avoid the problem of the import content of domestic production.

The article discusses programming models of national economies planning with facts. The case of Korea is considered in the article. It states that Korean economic planning has been more a process of experimentation than the orderly, repetitive sequence of calculations usually associated with the term planning. This was almost inevitable in view of conditions in the South Korean economy in recent years. The rate of economic expansion has accelerated at a pace impossible to foresee and significant policy reforms have been undertaken in several areas. As a consequence, planners' assessments of constraints to development and to some extent goals of economic policy have changed. To briefly indicate the pace of expansion, the gross national product growth rate has been about 11 percent per year, in real terms, for the past seven years and commodity exports have expanded by 40 percent per year for the past twelve years. The most significant policy reforms were enacted in the four years, from 1964-67. These included an exchange rate devaluation of about 100 percent, a doubling of commercial bank interest rates, a restructuring of the tariff system on the principle of effective protection rates and a revision of the tax structure.

This article focuses on the advisability of using interest rates directly to influence capital flows. If traditional interest rate parity prevails with free exchange rates, speculation being stabilizing, no interest rate alterations may be required. When independent speculative variable changes outweigh the effects of interest rate alterations under fixed exchange rates, interest rate policy is less relevant for exchange stabilization purposes. With flexible rates, smaller, self-limiting, amounts of capital may move more rapidly in response to interest rate changes. Because of the low-risk profitability of uncovered interest arbitrage with a narrow gold band, however, large capital amounts may flow as interest rates change and it is virtually impossible to separate speculative from interest-rate forces. It is not possible then for the monetary authorities to predict with any certainty the impact of interest rate changes on short-term capital flows under a narrow gold band, however, large capital amounts may flow as interest rates change and it is virtually impossible to separate speculative from interest-rate forces.

The article presents comments of economist Fritz Machlup on exchange rates. He argues that most discussions of the comparative advantage of fixed and flexible exchange rates suffer from semantic confusion. This is almost unavoidable, because so-called "fixed rates", are frequently altered and thus in effect not only quite flexible but often also very unstable in the long run, flexible rates, on the other hand, may in fact be relatively stable in the longrun. Instead of fixed rates one should perhaps say "fixed par values" and recognize that they usually are fixed only until the balance of payments is in such a fix that the par values have to be abandoned, usually to be refixed at another level. In common parlance, the system of fixed rates is one which countries peg the exchange rates of their currency close to a formally announced par value; the term "fixed" is applied regardless of whether the official peg is by adjusted every fifteen years, every five years. It presents a classification which is based in the scope of official management and on the limits set to the variability of the exchange rate.

The aim of this article is to analyze, under fixed and floating exchange rate systems, the behavior of the forward foreign exchange market in response to two exogenous disturbances, a change in expectations about the future spot rate and a change in the short-term interest differential. It attempts to show that even in flexible exchange rate countries domestic monetary policy is, under certain conditions, not independent of international considerations. The interest rate parity theory is assumed to hold in the long run, although not necessarily in the short run. In a floating rate system no domestic monetary adjustments need be made. If everyone's expectation changed in the same way, no capital flow is required and adjustment is rapid. As speculators become more confident of the "two interest rate" policy, which implies that the subsequent spot rate is less than today's forward rate, they will sell forward sterling in increasing amounts causing a massive capital outflow, which must result in devaluation or a policy of domestic inflation.

In this article the author discusses a model of employment and balance-of-payments equilibrium which considered the effects of changes in terms of trade that may be prompted by movements of exchange rates. Capital movements have been assumed to be a function of the domestic rate of interest. The author observes that it is tempting to surmise from the results for the limiting case of perfect interest elasticity of capital flows. The result stated that the two instruments of stabilization policy will always be relatively less effective tools under that exchange rate system in which they become totally inoperative in the limiting case.

This articles analyzes the systematic use of monetary policy in an open economy under fixed exchange rates to stabilize incomes and prices in the U.S. The first section of the article discusses the proposition that the money supply is an endogenous variable in an open economy under fixed exchange rates in terms of comparative-statics analysis. The second section focuses on the determinants of the length of time required to regain equilibrium after a monetary disturbance. The third deals with the proper use of monetary policy under fixed exchange rates. The main thrust of this analysis has been to argue that monetary policy is an inappropriate instrument of anti-cyclical policy under fixed exchange rates in a small open economy in anything but the short run. That is, systematic use of monetary policy to stabilize incomes and prices is, save under exceptional circumstances, incompatible with the proper functioning of a system of fixed exchange rates.

The article discusses the static theory of narrow-band foreign exchange markets according to the interest rate parity forward exchange rate which is the discount or premium from the spot exchange rate. The inelasticity of parity theory is based upon the risk of movement of the spot rate, and the risk of devaluation. The economic model was designed to handle a three-state market which includes the usual normal and speculative states. The models also accommodate the confidence market state in which there is no devaluation fear.

Investigates the status of capital markets in Europe. Hike in interest rates; Development of a unified European capital market that could raise funds for the continent's economies; Devices created for protection against fluctuating exchange rates.

The article focuses on confusions imported into a debate by the haphazard manner in which various economic models are labelled. The models involved are: a system in which the real-wage rate is specified as a particular "basket" of goods and prices are proportional to labor values; a system with a given real-wage rate and a uniform rate of profit on capital; a system in which the share of wages in the value of net output is given and there is a uniform rate of profit; a system in which prices are determined by the relation of demand to scarce means with alternative uses. There are rentals for particular physical "factors of production" but no overall rate of profit; a system in which the rate of interest is determined by the "marginal product of capital." The modern textbook doctrine is a mixture of systems, in which prices are determined by the relation of demand to scarce means with alternative uses and a system in which the rate of interest is determined by the marginal product of capital.