Abstract

This chapter develops new frameworks for analysing the international monetary repercussions of trade imbalances and exchange rate policy in an economic growth context. It first develops an alternative two-region flow model of trade imbalances and the exchange rate that combines exports, imports and monetary flows. It then examines links between the exchange rate and output-expenditure relations to show how exchange rate misalignment simultaneously influences global imbalances and macroeconomic conditions in each region.

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