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The slowdown in growth of international trade and the variability of exchange rates in the past 20 years are analyzed to determine a possible relationship between the two phenomena. Results indicate that the move to flexible exchange rates in 1973 may have added variability and uncertainty to monetary and fiscal policy, which are major influences on market-determined exchange rates. Exchange rate fluctuations also tend to reduce international trade, although the negative effect on trade is not large enough for the world community to make reducing exchange rate variability a top priority.

WHAT CAUSED THE FINANCIAL CRISIS THAT STRUCK A NUMBER OF EAST ASIAN ECONOMIES IN 1997? THERE ARE TWO COMMON INTERPRETATIONS. ONE EMPHASIZES INTERNAL PROBLEMS IN THE COUNTRIES AFFECTED, MAINLY FRAGILITY IN THEIR FINANCIAL SECTORS RESULTING FROM LAX GOVERNMENT REGULATION AND OVERRELIANCE ON GOVERNMENT GUARANTEES. THE OTHER ARGUES THAT FRAGILITY IN THE INTERNATIONAL CAPITAL MARKETS IS THE PROBLEM: IN THIS INTERPRETATION, A MODEST LIQUIDITY PROBLEM IN ONE COUNTRY (THAILAND) TRIGGERED A FINANCIAL PANIC THAT SPREAD TO ENCOMPASS A NUMBER OF COUNTRIES IN THE REGION AND IMPOSED ENORMOUS ECONOMIC COSTS ON THEM ALL., This article examines a third possibility, that the near-simultaneous crises in so many East Asian countries were set off by some external shock that hit all these countries at the [...]