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Exchange Rate Policy and Interdependence: Perspectives from the Pacific Basin
Book reviews/Journal of Banking & Finance 20 (1996) 1427-1443
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integration with the rest of the world through foreign investments: the result is the linkage of stock prices around the world. The second trend is important in countries where the equity markets were not active in the past, and is connected with the growth of securitization, or increased reliance on the equity market as opposed to the banking sector. The third is relevant for newly industrializing countries, or the opening of national financial systems to international finance. The papers in the book try to answer new questions regarding an increasingly integrated, securitized, and open financial system. The first part of the book deals with asset pricing and the home-country bias in internationally integrated markets, while the second part deals with trading volume, location, emerging markets, taxes, control and other implications. Some fundamental questions are addressed, among which gains through international diversification, effectiveness of integration, persistence of home country bias, fundamental macroeconomic determinants of security prices, impact of location in stock trading, of securities transactions taxes and of country funds, the effects of trade on newly liberalized countries, presence of barriers segmenting the market and the extent to which diversification across countries is effectively a valuable opportunity are also taken into account. More traditional questions are also addressed such as the methodology of empirical research: what is the appropriate version of the CAPM in an international context? Do expected returns reflect variances, covariances and the price of risk? Are market efficient?
R. Glick and M.M. Hutchinson, eds., Exchange Rate Policy and Interdependence: Perspectives from the Pacific Basin (Cambridge University Press, 1994) pp. 375 This volume contains a collection of essays presented at the conference 'Exchange Rate Policy in Pacific basin Countries', on the different exchange rate policy arrangements and individual experiences of Pacific Basin countries. The papers examine the degree of financial interdependence and the conduct of exchange rate and monetary policy across the countries of the Pacific Basin, that, because of the diversity of historical backgrounds, stages of economic development and financial market environments, offer a wide variety of approaches to exchange rate policy. The Pacific Basin is thus a valuable field for comparative analysis with respect to the procedures through which countries choose different exchange rate arrangements and on how these arrangements affect monetary policy and macroeconomic stability. The essays in the volume examine four broad issues: a) how closely linked financial markets are in the Pacific Basin; b) what the implications are of choosing different exchange rate regimes and how exchange rate policies influenced the dependence of Pacific Basin countries economies on developments abroad c) to what extent the countries' intervention in foreign exchange markets affected the conduct of monetary policy, and to what extent monetary authorities were able to sterilize the effects of their exchange rate
1430
Book reviews / Journal of Banking & Finance 20 (1996) 1427-1443
intervention; d) what the prospects are for a yen currency block among Pacific Basin countries; e) the desirability of a yen currency block from an investor's point of view.
P. Isard, Exchange Rate Economics (Cambridge University Press, 1995) pp. 275 The book provides a wide survey of exchange rate economics, to serve as a valuable reference to economists and to enlighten undergraduate and graduate students, and policymakers. Large and unpredictable swings in exchange rates present a major concern for macroeconomic stabilization policy. Since certain institutional characteristics and their historical evolution provide relevant perspectives in developing and understanding exchange rate behaviour. Part I, organized into two chapters, provides an historical and institutional background. The first chapter focuses on relevant characteristics of foreign exchange markets and money, while the second describes the different types of exchange rate arrangements that countries may choose, and presents the evolution of international monetary regimes. Part II focuses on the theoretical and empirical models describing the behavior of exchange rates, and it addresses the relationship between exchange rates and other economic variables. Despite the influence of market makers' instincts in accomplishing a transaction in response to trading flows and the flow of news and rumors, and despite the influence of exchange rate arrangements and of the actions of policy authorities, the behavior of exchange rates is fundamentally linked to the behavior of other economic variables: price levels, interest rates and international payment balances. Other chapters in Part ll are devoted to forward-looking models developed to capture the influence of news and of revisions in expectations, and the dynamic behavior of exchange rates; the empirical predictions of structural models of exchange rate behavior; new directions in the analysis of exchange rate behavior, such as the possible use of a policy optimization approach to model the behavior of realignment expectations in fixed exchange rates regimes, and new conceptual models of flexible exchange rates. Part II turns to exchange rate policy, to examine the choice of exchange rate arrangements and the key issues that policy makers confront in deciding whether and how to stabilize exchange rates. Perspectives are provided on the importance of fiscal and monetary discipline as a precondition for exchange rate stability.
H,S. Scott and P.A. Wellons, International Finance: Transactions, Policy and Regulation (The Foundation Press, Westbury, New York, 1995) pp. 1004 With the aid of key excerpts from readings offering different perspective on the subject, that of the scholar, the practitioner and the regulator, this book presents a new approach to the problems of international finance rooted in government policy
1429
integration with the rest of the world through foreign investments: the result is the linkage of stock prices around the world. The second trend is important in countries where the equity markets were not active in the past, and is connected with the growth of securitization, or increased reliance on the equity market as opposed to the banking sector. The third is relevant for newly industrializing countries, or the opening of national financial systems to international finance. The papers in the book try to answer new questions regarding an increasingly integrated, securitized, and open financial system. The first part of the book deals with asset pricing and the home-country bias in internationally integrated markets, while the second part deals with trading volume, location, emerging markets, taxes, control and other implications. Some fundamental questions are addressed, among which gains through international diversification, effectiveness of integration, persistence of home country bias, fundamental macroeconomic determinants of security prices, impact of location in stock trading, of securities transactions taxes and of country funds, the effects of trade on newly liberalized countries, presence of barriers segmenting the market and the extent to which diversification across countries is effectively a valuable opportunity are also taken into account. More traditional questions are also addressed such as the methodology of empirical research: what is the appropriate version of the CAPM in an international context? Do expected returns reflect variances, covariances and the price of risk? Are market efficient?
R. Glick and M.M. Hutchinson, eds., Exchange Rate Policy and Interdependence: Perspectives from the Pacific Basin (Cambridge University Press, 1994) pp. 375 This volume contains a collection of essays presented at the conference 'Exchange Rate Policy in Pacific basin Countries', on the different exchange rate policy arrangements and individual experiences of Pacific Basin countries. The papers examine the degree of financial interdependence and the conduct of exchange rate and monetary policy across the countries of the Pacific Basin, that, because of the diversity of historical backgrounds, stages of economic development and financial market environments, offer a wide variety of approaches to exchange rate policy. The Pacific Basin is thus a valuable field for comparative analysis with respect to the procedures through which countries choose different exchange rate arrangements and on how these arrangements affect monetary policy and macroeconomic stability. The essays in the volume examine four broad issues: a) how closely linked financial markets are in the Pacific Basin; b) what the implications are of choosing different exchange rate regimes and how exchange rate policies influenced the dependence of Pacific Basin countries economies on developments abroad c) to what extent the countries' intervention in foreign exchange markets affected the conduct of monetary policy, and to what extent monetary authorities were able to sterilize the effects of their exchange rate
1430
Book reviews / Journal of Banking & Finance 20 (1996) 1427-1443
intervention; d) what the prospects are for a yen currency block among Pacific Basin countries; e) the desirability of a yen currency block from an investor's point of view.
P. Isard, Exchange Rate Economics (Cambridge University Press, 1995) pp. 275 The book provides a wide survey of exchange rate economics, to serve as a valuable reference to economists and to enlighten undergraduate and graduate students, and policymakers. Large and unpredictable swings in exchange rates present a major concern for macroeconomic stabilization policy. Since certain institutional characteristics and their historical evolution provide relevant perspectives in developing and understanding exchange rate behaviour. Part I, organized into two chapters, provides an historical and institutional background. The first chapter focuses on relevant characteristics of foreign exchange markets and money, while the second describes the different types of exchange rate arrangements that countries may choose, and presents the evolution of international monetary regimes. Part II focuses on the theoretical and empirical models describing the behavior of exchange rates, and it addresses the relationship between exchange rates and other economic variables. Despite the influence of market makers' instincts in accomplishing a transaction in response to trading flows and the flow of news and rumors, and despite the influence of exchange rate arrangements and of the actions of policy authorities, the behavior of exchange rates is fundamentally linked to the behavior of other economic variables: price levels, interest rates and international payment balances. Other chapters in Part ll are devoted to forward-looking models developed to capture the influence of news and of revisions in expectations, and the dynamic behavior of exchange rates; the empirical predictions of structural models of exchange rate behavior; new directions in the analysis of exchange rate behavior, such as the possible use of a policy optimization approach to model the behavior of realignment expectations in fixed exchange rates regimes, and new conceptual models of flexible exchange rates. Part II turns to exchange rate policy, to examine the choice of exchange rate arrangements and the key issues that policy makers confront in deciding whether and how to stabilize exchange rates. Perspectives are provided on the importance of fiscal and monetary discipline as a precondition for exchange rate stability.
H,S. Scott and P.A. Wellons, International Finance: Transactions, Policy and Regulation (The Foundation Press, Westbury, New York, 1995) pp. 1004 With the aid of key excerpts from readings offering different perspective on the subject, that of the scholar, the practitioner and the regulator, this book presents a new approach to the problems of international finance rooted in government policy