Contents. 1 Introduction. The Globalization of the World Economy 1 1.1A We Live in a Global Economy 1

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1 1 Introduction The Globalization of the World Economy 1 1.1A We Live in a Global Economy 1 The Globalization Challenge 3 The Dell PCs, iphones, and ipads Sold in the United States Are Anything but American! International Trade and the Standard of Living 4 I-2 Importance of International Trade to the United States 7 The International Flow of Goods, Services, Labor, and Capital 8 1.3A The International Flow of Goods and Services: The Gravity Model 8 1.3B The International Flow of Labor and Capital 8 Major Net Exporters and Importers of Capital International Economic Theories and Policies A Purpose of International Economic Theories and Policies 1.4B The Subject Matter of International 1.5 Current International Economic Problems and Challenges Organization and Methodology of the Text A Organization of the Text B Methodology of the Text 15 Summary 16 Key Terms 17 Problems 17 Basic International Trade Data Sources of Additional International Data and Information 22 Selected Bibliography 23 Salvatore, Dominick International economics 2014 digitalisiert durch: IDS Basel Bern

2 International Trade Theory 2 The Law of Advantage Introduction The Mercantilists' Views on Trade 30 Munn's Views on Trade Mercantilism Is and in the Century 2.3 Trade Based on Absolute Advantage: Adam Smith A Absolute Advantage B Illustration of Absolute Advantage Trade Based on Comparative Advantage: David Ricardo A The Law of Comparative Advantage B The Gains from Trade c The Case of No Comparative Advantage D Comparative Advantage with Money The Petition of the Comparative Advantage and Opportunity Costs A Comparative Advantage and the Labor Theory of B The Opportunity Cost Theory c The Possibility Frontier under Constant Costs D Opportunity Costs and Relative Prices The Basis for and the Gains from Trade under Constant Costs A Illustration of the Gains from Trade B Relative Commodity Prices with Trade Tests of the Ricardian Model 45 Summary 48 Key Terms 49 Problems Relative Unit Labor Costs and Relative States and Japan 47 A2.1 Comparative Advantage with More Than Two Commodities 51 A2.2 Comparative Advantage with More Than Two Nations 52 Selected Bibliography 53 3 The Standard Theory of International Trade Introduction The Frontier with Increasing Costs 56

3 3.2A Illustration of Increasing Costs B The Marginal Rate of Transformation c Reasons for Increasing Opportunity Costs and Different Frontiers Community Indifference Curves A Illustration of Community Indifference Curves B The Marginal Rate of Substitution c Some Difficulties with Community Indifference Curves Equilibrium in Isolation A Illustration of Equilibrium in Isolation B Equilibrium-Relative Commodity Prices and Comparative Advantage 3.5 The Basis for and the Gains from Trade with Increasing Costs 62 Comparative Advantage of the Largest Advanced and Emerging Economies A Illustrations of the Basis for and the Gains from Trade with Increasing Costs B Equilibrium-Relative Commodity Prices with Trade c Incomplete Specialization Specialization and Export Concentration in Selected Countries D Case with Increasing Costs E The Gains from Exchange and from Specialization International Trade and Deindustrialization in the United States, the European Union, and Japan Trade Based on Differences in Tastes A Illustration of Trade Based on Differences in Tastes 69 Summary 70 Key Terms Problems A3.1 Functions, Isoquants, Isocosts, and Equilibrium 73 Produetion Theory with Two Nations, Two Commodities, and Two Factors 74 Derivation of the Edgeworth Box Diagram and Produetion Frontiers 75 A3.4 Some Important Conclusions 78 Selected Bibliography 79

4 4.1 Introduction 81 Supply, Offer Curves, the Terms Trade The Equilibrium-Relative Commodity Price with Equilibrium Analysis Offer Curves 84 Demand, Supply, and the International Price of Petroleum A Origin and Definition of Offer Curves B Derivation and Shape of the Offer Curve of Nation c Derivation and Shape of the Offer Curve of Nation The Equilibrium-Relative Commodity Price with Equilibrium Analysis Relationship between General and Partial Equilibrium Analyses The Terms of Trade A Definition and Measurement of the Terms of Trade B Illustration of the Terms of Trade The Terms of Trade of the G-7 Countries The Terms of Trade of Advanced and Developing Countries c Usefulness of the Model 91 Summary 92 Key Terms 93 Problems 93 Derivation of a Trade Indifference Curve for Nation 1 94 A4.2 Derivation of Nation Trade Indifference Map 95 A4.3 Formal Derivation of Nation l's Offer Curve 95 A4.4 Outline of the Formal Derivation of Nation 2's Offer Curve 98 A4.5 General Equilibrium of Consumption, and Trade 98 A4.6 Multiple and Unstable Equilibria 101 Selected Bibliography Factor and the Theory Introduction Assumptions of the Theory 5.2A The Assumptions B Meaning of the Assumptions Factor Intensity, Factor Abundance, and the Shape of the Frontier A Factor Intensity 106

5 5.3B Factor Abundance c Factor Abundance and the Shape of the Frontier 109 Relative Resource of Various Countries Ratios of Selected Countries Factor Endowments and the Theory 5.4A The Heckscher-Ohlin Theorem 5.4B General Equilibrium Framework of the Heckscher-Ohlin Theory 5.4c Illustration of the Heckscher-Ohlin Theory 5-3 Classification of Major Product Categories in Terms of Factor Intensity 5-4 The Factor Intensity of Trade of Various Countries Factor-Price Equalization and Income Distribution 5.5A The Factor-Price Equalization Theorem 5.5B Relative and Absolute Factor-Price Equalization 5.5c Effect of Trade on the Distribution of Income D The Specific-Factors Model 122 International Trade Increased U.S. Wage 5.5E Empirical Relevance Convergence Wages Industrial Countries Empirical Tests of the Heckscher-Ohlin Model 5.6A Empirical Leontief Paradox Capital and Labor Requirements in U.S. Trade B Explanations of the Leontief Paradox and Other Empirical Tests of the H-0 Model The Model with Skills and Land c Reversal Summary 132 Key Terms Problems 133 A5.1 The Edgeworth Box Diagram for Nation 1 and Nation A5.2 Relative Factor-Price Equalization 135 A5.3 Absolute Factor-Price Equalization 138 A5.4 Effect of Trade on the Short-Run Distribution of Income: The Specific-Factors Model 139 A5.5 Illustration of Factor-Intensity Reversal 141 A5.6 The Elasticity of Substitution and Factor-Intensity Reversal 143

6 A5.7 Empirical Tests of Factor-Intensity Reversal 144 Selected Bibliography Economies of Scale, and International Trade Introduction The Heckscher-Ohlin Model and New Trade Theories Economies of Scale and International Trade The New International Economies of Scale 153 CASE STUDY 6-2 Job Loss Rates in U.S. Industries and Globalization Imperfect Competition and International Trade A Trade Based on Product Differentiation U.S. Trade in Automotive Products 6-4 Variety Gains with International Trade B Measuring Intra-lndustry Trade Growth of Intra-lndustry Trade Intra-lndustry Trade Indexes for G-20 Countries c Formal Model of Intra-lndustry Trade D Another Version of the Intra-lndustry Trade Model Trade Based on Dynamic Technological Differences A Technological Gap and Product B Illustration of the Product Cycle Model Costs of Transportation, Environmental Standards, and International Trade A Costs of Transportation and Nontraded Commodities B Costs of Transportation and the Location of Industry c Environmental Standards, Industry Location, and International Trade 169 Summary 171 Key Terms 172 Problems Environmental Performance Index 170 A6.1 External Economies and the Pattern of Trade 173 A6.2 Dynamic External Economies and Specialization 174 Selected Bibliography Economic Growth and International Trade Introduction Growth of Factors of 7.2A Labor Growth and Capital Accumulation over Time 180

7 7.2B The Rybczynski Theorem Technical Progress A Neutral, Labor-Saving, and Capital-Saving Technical Progress B Technical Progress and the Nation's Frontier 184 Growth in the Capital Stock per Worker of Selected Countries Growth and Trade: The Case A The Effect of Growth on Trade 7.4B Illustration of Factor Growth, Trade, and Weifare c Technical Progress, Trade, and Weifare Growth in Output per Worker from Capital Deepening, Technological Change, and Improvements in Efficiency Growth and Trade: The Large-Country Case A Growth and the Nation's Terms of Trade and Weifare B Immiserizing Growth c Illustration of Beneficial Growth and Trade Growth and the Emergence Growth, Change in Tastes, and Trade in Both Nations A Growth and Trade in Both Nations 196 Economic Giants 7.6B Change in Tastes and Trade in Both Nations Growth, Trade, and Weifare in the Leading Industrial Countries 198 Summary 199 Key Terms 200 Problems 200 A7.1 Formal Proof of the Rybczynski Theorem 202 A7.2 Growth with Factor 204 A7.3 Graphical Analysis of Hicksian Technical Progress 205 Selected Bibliography 207 Part 2 International Trade Policy 8 Trade Restrictions: Tariffs Introduction Average Nonagricultural Products in Major Developed Countries

8 8-2 Average Tariffs on Nonagricultural Products in Some 8.2 Partial Equilibrium Analysis of a Tariff Major Developing Countries A Partial Equilibrium Effects of a Tariff B Effect of a Tariff on Consumer and Producer Surplus c Costs and Benefits of a Tariff The are Effect of Liberalizing Trade on Some U.S. Products The Weifare Effect of Liberalizing Trade on Some EU Products The Theory of Tariff Structure 8.3A The Rate of Effective Protection B Generalization and Evaluation of the Theory of Effective Protection Rising Tariff Rates with Degree of Domestic Processing Structure of Tariffs on Industrial Products in the United States, the European Union, Japan, and Canada General Equilibrium Analysis of a Tariff in a Country A General Equilibrium Effects of a Tariff in a Small Country B Illustration of the Effects of a Tariff in a Small Country c The Theorem General Equilibrium Analysis of a Tariff in a Large Country A General Equilibrium Effects of a Tariff in a Large Country B Illustration of the Effects of a Tariff in a Large Country The Optimum Tariff 229 Summary 8.6A The Meaning of the Concept of Optimum Tariff and Retaliation B Illustration of the Optimum Tariff and Retaliation 230 Key Terms 232 Problems 232 A8.1 Partial Equilibrium Effects of a Tariff in a Large Nation 234 A8.2 Derivation of the for the Rate of Effective Protection 236 A8.3 The Stolper-Samuelson Theorem 237 A8.4 Exception to the Stolper-Samuelson Metzler Paradox 239 A8.5 Short-Run Effect of a Tariff on Factors' Income 240 A8.6 Measurement of the Optimum Tariff 242 Selected Bibliography 243

9 9 Nontariff Trade Barriers and the New Protectionism Introduction Import Quotas A Effects of an Import Quota B Comparison of an Import Quota to an Import Tariff Other Nontariff Barriers and the New Protectionism A Export Restraints 250 Voluntary Export Restraints (VERs) on Japanese Automobiles to the United States and Europe 9.3B Technical, Administrative, and Other Regulations c International Cartels D Dumping E Export Subsidies Antidumping Investigations by G20 Members Agricultural Subsidies in OECD Countries Pervasiveness of Nontariff Barriers F Analysis of Export Subsidies The Political Economy of Protectionism A Fallacious and Questionable Arguments for Protection B The and Other Qualified Arguments for Protection c Who Gets Protected? Benefits to the World Economy from Complete Trade Liberalization Trade and Industrial Policies A Trade Policy B Strategie Trade and Industrial Policies with Game Theory c The U.S. Response to Foreign Industrial Targeting and Strategie Trade Policies History of U.S. Policy A The Trade Agreements Act of B The General Agreement on Tariffs and Trade (GATT) c The 1962 Trade Expansion Act and the Kennedy Round D The Trade Reform Act of 1974 and the Tokyo Round E The 1984 and 1988 Trade Acts The Uruguay Round, Outstanding Trade Problems, and the Doha Round A The Uruguay Round Gains from the Uruguay Round 9-7 The Multilateral Rounds of Trade B Outstanding Trade Problems and the Doha Round 276 Contents

10 Summary 277 Key Terms 279 Problems Benefits from a Likely Doha Scenario 277 A9.1 Centralized Cartels 281 A9.2 International Price 281 A9.3 Tariffs, Subsidies, and Domestic Goals 282 Selected Bibliography 284 Economic Integration: and Free Trade Areas Introduction Trade-Creating Customs Union A Trade Creation B Illustration of a Trade-Creating Customs Union Trade-Diverting Customs Unions A Trade Diversion B Illustration of a Trade-Diverting Customs Union The Theory of the Second Best and Other Static are Effects of Customs Unions A The Theory of the Second Best B Conditions More Likely to Lead to Increased Weifare c Other Static Weifare Effects of Customs Unions Dynamic Benefits from Customs Unions History of Attempts at Economic Integration A The European Union 297 Economic Profile EU, NAFTA, and Japan 298 Gains from the Single EU Market B The European Free Trade Association c The North American and Other Free Trade Agreements 301 's Gains from and Outcome D Attempts at Economic Integration Developing Countries 304 Economic Profile E Economic Integration in Central and Europe and in the Former Soviet Republics 306 Summary 309 Changes in Trade with Economic Integration 307

11 Key Terms 310 Problems 310 General Equilibrium Analysis of the Static Effects of a Trade-Diverting Customs Union A10.2 Regional Trade Agreements Around the World 312 Selected Bibliography 314 International Trade and Economic Development 319 Introduction 11.2 The Importance of Trade to Development 320 Trade Theory and Economic Development 320 Trade as an Engine of Growth 321 The Contributions of Trade to Development 323 2D International Trade and Endogenous Growth Theory 324 The East Asian Miracle of Growth and Trade 325 The Terms of Trade and Economic Development A The Various Terms of Trade 326.3B Alleged Reasons for Deterioration in the Commodity Terms of Trade 327 Historical Movement in the Commodity and Income Terms of Trade 328 Change in Commodity Prices over Time 330 Export Instability and Economic Development Cause and Effects of Export Instability Measurements of Export Instability and Its Effect on Development 332 International Commodity Agreements 333 Import Substitution versus Export Orientation 334 Development through Import Substitution versus Exports 334 Experience with Import Substitution 336 The Growth Countries, Globalizers, and Nonglobalizers 336 Trade Liberalization and Growth in Developing Countries 337 Manufactures in Total Exports of Selected Developing Countries Current Problems Facing Developing Countries 339 Poverty in Developing Countries 339 The Foreign Debt Problem of Developing Countries 341

12 Summary 344 The Foreign Debt of Developing Countries 341 j Trade Problems of Developing Countries 342 Globalization and World Poverty 343 Key Terms 345 Problems Income Inequalities by Traditional and Parity (PPP) Measures 346 Selected Bibliography 347 j 12 International Resource Movements and Multinational Corporations Introduction Some Data on International Capital Motives for International Capital Flows A Motives for International Portfolio Investments B Motives for Direct Foreign Investments are Effects of International Capital Flows 359 The Stock of Foreign Direct Investments Around the World A Effects on the and Host Countries B Other Effects on the Investing and Host Countries Multinational Corporations A Reasons for the Existence of Multinational Corporations B Problems Created by Multinational Corporations in the Home Country 364 The 's Largest Nonpetroleum, Industrial Corporations c Problems Created by Multinational Corporations in the Host Country Motives for and Weifare Effects of International Labor Migration 367 Summary 12.6A Motives for International Labor Migration B Weifare Effects of International Labor Migration c Other are Effects of International Labor Migration 369 Key Terms 372 Problems 372 The Transfer Problem 372 Selected Bibliography 373

13 3 The Balance of Payments, Foreign Exchange Markets, and Exchange Rates 13 Balance of Payments Introduction Accounting Principles A Credits and Debits B Bookkeeping The International Transactions of the United States 383 Accounting Balances and the Balance of Payments The Postwar Balance of Payments of the United States 388 The Major Trade Partners United States 390 The Exploding U.S. Trade Deficit with China The International Investment Position of the United States The United States as a Debtor Nation 394 Summary 395 Key Terms 395 Problems 396 A13.1 The IMF Method of Reporting International Transactions 397 Selected Bibliography 400 Foreign Exchange Markets and Exchange Rates Introduction Functions of the Foreign Exchange Markets 403 The U.S. Dollar as the Dominant International Currency 405 The Birth of a New Currency: The Euro Foreign Exchange Rates A Equilibrium Foreign Exchange Rates 407 Foreign Exchange B Arbitrage C The Exchange Rate and the Balance of Payments 14.4 Spot and Forward Rates, Currency Swaps, Futures, and A Spot and Forward Rates B Foreign Exchange Swaps c Foreign Exchange Futures and Options 416

14 Size, Currency, and Distribution of the Foreign Exchange Market Foreign Exchange Risks, Hedging, and Speculation A Foreign Exchange Risks B Hedging c Speculation Interest Arbitrage and the Efficiency of Foreign Exchange Markets A Uncovered Interest Arbitrage 424 Carry Trade B Covered Interest Arbitrage c Covered Interest Arbitrage Parity D Covered Interest Arbitrage Margin 429 Efficiency of Foreign Exchange Markets Eurocurrency or Financial Markets 14.7A Description and Size of the Eurocurrency Market Reasons for the Development and Growth of the Eurocurrency Market 432 Size and Growth of Eurocurrency Market c Operation and Effects of the Eurocurrency Market D Eurobond and Euronote Markets 435 Summary 436 Key Terms 437 Problems 437 A14.1 Derivation of the Formula for the Covered Interest Arbitrage Margin 439 Selected Bibliography Exchange Rate Determination Introduction 443 Purchasing-Power Parity Theory A Absolute Purchasing-Power Parity Theory B Relative Purchasing-Power Parity Theory 445 Absolute Purchasing-Power Parity in the Real World 446 The Big Mac Index and the Law of One Price 447 Relative Purchasing-Power Parity in the Real World c Empirical Tests of the Purchasing-Power Parity Theory 450

15 15.3 Monetary Approach to the Balance of Payments and Exchange Rates 15.3A Monetary Approach under Fixed Exchange Rates 15.3B Monetary Approach under Flexible Exchange Rates c Monetary Approach to Exchange Rate Determination 455 Monetary Growth and Inflation 456 Nominal and Real Exchange Rates, and the Monetary Approach 457 Expectations, Interest Differentials, and Exchange Rates 458 Interest Differentials, Exchange Rates, and the Monetary Approach 460 Portfolio Balance Model and Exchange Rates 460 Portfolio Balance Model B Extended Portfolio Balance Model c Portfolio Adjustments and Exchange Rates Exchange Rate Dynamics A Exchange Rate Overshooting B Time Path to a New Equilibrium Exchange Rate Empirical Tests of the Monetary and Portfolio Balance and Exchange Rate Forecasting 469 Summary 473 Key Terms 474 Problems 474 Exchange Rate Overshooting U.S. Dollar 470 The Euro Exchange Rate Defies Forecasts All Formal Monetary Approach Model 476 Formal Portfolio Balance Model and Exchange Rates 477 Selected Bibliography 479 Part International Monetary System and the The Price Adjustment with Flexible and Fixed Exchange Rates Introduction Adjustment with Flexible Exchange Rates A Adjustments with Exchange Rate Changes B Derivation of the Demand Curve for Foreign Exchange 487

16 16.2c Derivation of the Supply Curve for Foreign Exchange Effect of Exchange Rate Changes on Domestic Prices and the Terms of Trade 490 I Currency Depreciation and Inflation in i Developing Countries during the East Asian Crisis 491 Stability of Foreign Exchange Markets A and Unstable Foreign Exchange Markets B The Marshall-Lerner Condition Elasticities in the Real World A Elasticity Estimates B The J-Curve Effect and Revised Elasticity Estimates 497 Estimated Price Elasticities in International Trade 498 Other Estimated Price Elasticities in International Trade 499 Dollar Depreciation and the U.S. Current Account Balance 500 Exchange Rates and Current Account Balances during the European Financial Crisis of the Early 1990s c Currency Pass-Through 501 Exchange Rate Pass-Through to Import Prices in Industrial Countries Adjustment under the Gold Standard A The Gold Standard B The Mechanism 504 Summary 506 Key Terms 506 Problems 507 The Effect of Exchange Rate Changes on Domestic Prices 508 Derivation of the Marshall-Lerner Condition Derivation of the Gold Points and Gold Flows under the Gold Standard Selected Bibliography The Income Adjustment Mechanism and Synthesis of Automatic Adjustments Introduction 17.2 Income Determination in a Economy A Determination of the Equilibrium National Income in a Closed Economy

17 17.2B Multiplier in a Closed Economy Income Determination in a Small Open Economy A Import Function 522 Income Elasticity of Imports 523 Determination of the Equilibrium National Income in a Small Open Economy 524 Private Sector and Current Account s c Graphical Determination of the Equilibrium National Income D Foreign Trade Multiplier Foreign Repercussions 531 Growth in the United States and the World and U.S. Current Account 529 Growth and Current Account Balance in Developing Economies 530 Effect of the Asian Financial Crisis Late 1990s on OECD Countries Absorption Approach Monetary Adjustments and Synthesis of the Automatic Adjustments A Monetary Adjustments B Synthesis of Automatic Adjustments 536 Interdependence in the World Economy c Disadvantages of Automatic Adjustments 538 Summary 539 Key Terms 540 Problems 540 A17.1 Derivation of Foreign Trade Multipliers with Foreign Repercussions 541 A17.2 The Transfer Problem Once Again 543 Selected Bibliography Adjustment Policies Introduction 547 Government, Private-Sector, and Current Account Balances in the G-7 Countries Internal and External Balance with Expenditure-Changing and Expenditure-Switching Policies Equilibrium in the Goods Market, in the Money Market, and in the Balance of Payments Fiscal and Monetary Policies for Internal and External Balance with Fixed Exchange Rates 555

18 18.4A Fiscal and Monetary Policies from External Balance and Unemployment B Fiscal and Monetary Policies from External Deficit and Unemployment c Fiscal and Monetary Policies with Elastic Capital Flows D Fiscal and Monetary Policies with Perfect Capital Mobility 559 Effect Fiscal Policy in the United States and Abroad The Model with Flexible Exchange Rates A The IS-LM-BP Model with Flexible Exchange Rates and Imperfect Capital Mobility B The IS-LM-BP Model with Flexible Exchange Rates and Perfect Capital Mobility 564 Effect of Monetary Policy in the United States and Other OECD Countries Policy Mix and Price Changes A Policy Mix and Internal and External Balance 567 Evaluation of the Policy Mix with Price Changes c Policy Mix in the Real World Direct Controls A Trade Controls B Exchange Controls 573 Summary 576 Key Terms 577 Problems 577 Deeper U.S. Recession without Strong Fiscal and Monetary Measures 572 Other Direct Controls and International Cooperation 574 Direct Controls on International Transactions Around the World 575 Derivation of the IS Curve 579 Derivation of the LM Curve 580 Derivation of the BP Curve 582 Selected Bibliography 584 Summary 582

19 Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply Introduction Aggregate Demand, Aggregate Supply, and Equilibrium in a Closed Economy A Aggregate Demand in a Closed Economy B Aggregate Supply in the Long Run and in the Short Run c Short-Run and Long-Run Equilibrium in a Closed Economy 591 Deviations of Short-Run Outputs from the Natural Level in the United States Aggregate Demand in an Open Economy under Fixed and Flexible Exchange Rates A Aggregate Demand in an Open Economy under Fixed Exchange Rates B Aggregate Demand in an Open Economy under Flexible Exchange Rates Effect of Economic Shocks and Macroeconomic Policies on Aggregate Demand in Open Economies with Flexible Prices A Shocks and Aggregate Demand B Monetary Shocks and Aggregate Demand c Fiscal and Monetary Policies and Aggregate Demand in Open Economies Effect of Fiscal and Monetary Policies in Open Economies with Flexible Prices 600 Central Bank Independence and Inflation in Industrial Countries 602 Inflation New Approach to Monetary Policy Macroeconomic Policies to Stimulate Growth and Adjust to Supply Shocks A Macroeconomic Policies for Growth B Macroeconomic Policies to Adjust to Supply Shocks 604 Impact of an Increase in the Price of Petroleum 607 Actual and Natural Unemployment Rates and Inflation in the United States 608 Summary 609 Key Terms 610 Problems 610 Selected Bibliography Contents

20 20 Flexible versus Fixed Exchange Rates, the European Monetary System, and Macroeconomic Policy Coordination Introduction The Case for Flexible Exchange Rates A Market Efficiency B Policy Advantages The Case for Fixed Exchange Rates 20.3A Less Uncertainty B Speculation c Price Discipline D The Open-Economy Trilemma 622 Macroeconomic Performance under Fixed and Flexible Exchange Rate Regimes Optimum Currency Areas, the European Monetary System, and the European Monetary Union A Optimum Currency Areas B European Monetary System ( ) 625 CASE STUDY 20-2 The Currency Crisis in the European Monetary System c Transition to Monetary Union D Creation of the Euro Maastricht Convergence Indicators Benefits and Costs of the Euro E The European Central Bank and the Common Monetary Policy The Eurozone Crisis Currency Boards Arrangements and Dollarization A Currency Board Arrangements B Dollarization 's Currency Board Arrangements and Crisis Exchange Rate Bands, Adjustable Pegs, Crawling Pegs, and Managed Floating A Exchange Rate Bands B Adjustable Peg Systems c Crawling Pegs D Managed Floating Exchange Rate Arrangements of International Macroeconomic Policy Coordination 641

21 Summary 643 Key Terms 644 Problems 644 A20.1 Exchange Rate Arrangements 645 Selected Bibliography The International Monetary System: Past, Present, and Future 655 Introduction The Gold Standard and the Interwar Experience 656.2A The Gold Standard Period B The Interwar Experience The Bretton Woods System 659 The Gold-Exchange Standard B Borrowing from the International Monetary Fund Operation and Evolution of the Bretton Woods System A Operation of the Bretton Woods System B Evolution of the Bretton Woods System 663 Macroeconomic Performance under Different Exchange Rate Regimes U.S. Deficits and Collapse of the Bretton Woods System A U.S. Deficits B Collapse of the Bretton Woods System The International Monetary System: Present and Future A Operation of the Present System B Current IMF Operation C Problems with Present Exchange Rate Arrangements 674 Proposals for Present Exchange Rate Arrangements 675 Financial Crises in Emerging Market Economies 677 The Anatomy of a Currency Crisis: The Collapse of the Mexican Peso Chronology of Economic Crises in Emerging Markets: From Asia to Argentina 678 The Financial Crisis in the United States and Other Advanced Economies

22 Other Current International Economic Problems 682 Trade of the Leading Industrial Nations 684 Summary 686 Key Terms 688 Problems 688 A21.1 International Reserves: Selected Bibliography 691 Glossary of Terms 697 Name