The global financial crisis has proved that economic realities are very different from the traditional assumptions of macroeconomics. Macroeconomic Policies for Emerging and Developing Economies provides a contemporary analytical account and discusses the current debates on the theory and practices of macroeconomic policies of developing economies emerging from the crisis. It deals with issues relating to openness, capital flows and exchange rate policies as well as macro-financial policies. It underscores two important points: the need to design a development strategy that takes into account the economic context of the countries concerned, and for well-regulated macro-financial policies that would help promote the objects of sustainable growth with price and financial stability. This engaging and unrivalled guide to macroeconomic policy goes beyond the standard macroeconomists’ tool kit of monetary, fiscal and exchange rate policies and includes topics such as development strategies and macro-financial policies.
Chapter 5: Exchange Rate and Openness: The World is One!
Exchange Rate and Openness: The World is One!
The First Sip
We all remember Robinson Crusoe from the 1719 novel of the same name by Daniel Defoe. The problem with Crusoe was that he, after a shipwreck, was confined to an island for a long time. What was wrong with being confined to an island? Many problems could arise. Crusoe could not talk to anyone; life was very boring; Crusoe might have wanted to have rice and lentil but all he had were coconut trees in the island. Thus, his needs had to be confined within the produce of the island. Altogether, this was not a happy situation.
Many of the problems faced by Crusoe would be true for ...