Frieden and Broz Note

Frieden and Broz Note - The Political Economy of Exchange...

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The Political Economy of Exchange Rates – Jeffry Frieden and Lawrence Broz Introduction: - exchange rate is the most important price in any economy because it affects all other prices - analysis of political economy of currency focuses on two sets of questions 1. Global and deals with the character of the international monetary system 2. National and deals with the policy of particular governments towards their exchange rates o National polices have an impact on the international system o Global monetary regime influences national policy choices I. The International Political Economy of Exchange Rate Policy - intl regime types tend toward one of two ideal types 1. Fixed rate system currencies are tied to each other at publically announced rates 2. Free floating national currency values vary with market conditions and national macroeconomic policies - reigning order has been once in which the largest countries had had floating national currencies, while smaller countries have tended either to fix their currencies against of the the major countries or allow their currencies to float with varying degrees of government management Under this “regime” a number of fixed rate systems have emerged - analysis of these regimes involves looking at nation-states as decision-making units and consider how these units deal with standard coordination (entails interaction among government to converge on a focal point) and cooperation (adjustment of national policies to support the regime) problems Example of Prisoner’s Dilemma
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Frieden and Broz Note - The Political Economy of Exchange...

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