The paradoxical behavior of the dollar since 1980 poses a challenge to standard models of open economy macroeconomics. Using the dollar as a fulcrum, the original essays in this book discuss the causes of the dramatic shifts in the dollar's exchange value during the past decade and the effect of these fluctuations on the economies of the United States, Japan, Europe, and the developing nations, as well as its impact on theories of international economics.
Stefan Gerlach and Peter Petri address the causes of the dollar's extreme rise and sudden fall in the 1980s and speculate on how the cycle changed theories of trade, exchange rate determination, and international capital markets. James Tobin's debunking of myths about the dollar has important implications for the future course of U.S. economic policy, while Rachel McCulloch provides an overview of the remarkable events of the past decade. Paul Krugman points out how the experience highlights the bankruptcy of current theories of integration of goods and financial markets. Peter Garber urges caution in interpreting the fluctuations in the dollar as due to a speculative bubble. Several contributors offer exciting new ideas to be formalized and tested. These include structural breaks, asymmetries, and ratchets, addressed by Richard Baldwin and Charles Kindleberger, and the corporate response to the dollar, analyzed by Robert Aliber and by Ruyhei Wakasugi. Charles Wyplosz discusses the impact of the dollar on Europe, and Stefen Gerlach reviews the relationship between the dollar and its fundamentals. In the book's final essay, Peter Petri describes the impacts of the dollar cycle on the developing countries.