[...]... presents the proceedings of a conference “The Misalignment of Exchange Rates: Effects on Trade and Industry, ” sponsored by the National Bureau of Economic Research and held in Cambridge, Massachusetts, on 7-8 May 1987 I would like to express my appreciation to the authors, discussants, and panel members whose contributions are published here for their participation in the conference and their willingness... change the long-run e that would balance the current account, but it did move r and e 1.2.3 Interest Rates and the Exchange Rate We can now join the flow equilibrium condition, equation ( l ) , and the rate -of- return condition, equation (6), to form the short-run framework for simultaneous determination of r and e Let us rewrite equation (1) to show the dependence of S and I on r, and of X on e and a shift... series of questions concerning misalignment First, what causes exchange rates to be misaligned, and to what extent are observed movements in real exchange rates attributable to misalignment? The causes of misalignment are investigated both empirically within the context of the experiences of individual countries and theoretically in models of imperfect competition The second set of questions concerns... questions concerns the effects of misalignment How severe are these effects on employment and production in the countries concerned? Several of the papers provide detailed estimates of the effects of changes in real exchange rates on individual industries Note that these estimates are not confined solely to cases of misalignment, since many of the same adjustment costs are incurred in response to real disturbances... Princeton University and director of the Program in International Studies and research associate of the National Bureau of Economic Research 9 10 William H Branson clear The expansionary shift in the structural deficit pushed real interest rates and the dollar up; closing the deficit will bring them down The current situation of mid-1987, with a continuing structural deficit estimated by the Congressional... Introduction Charles Bean investigates the misalignment of the pound sterling and its effects on British trade In the first part of the paper, he uses a small-scale model of the British economy to study alternative explanations of the appreciation in the real exchange of the pound by 23% between 1978 and 1981 He finds that the discovery of North Sea oil and the subsequent rise in its price as a result of. .. publication schedule On behalf of the NBER, I would like to thank the Ford Foundation and the Andrew W Mellon Foundation for providing financial support for the conference I also thank Debbie Mankiw of the NBER for organizing a second conference in Washington at which many of the papers that appear in this volume were presented to a wider audience of economists, business leaders, and government officials... dollar in the 1980s is exposition of a framework that describes the determination of movements in real interest rates and the real exchange rate The focus is on real interest rates, because these have been the source of surprise and concern If nominal interest rates had simply followed the path of expected or realized inflation and the exchange rate had followed the path of relative prices, the world... movement of interest rates and the exchange rate relative to the price path that is of interest here So I begin by taking the actual and expected path of prices as given, perhaps determined by monetary policy, and I focus on real interest rates and the real exchange rate In this section I develop a framework that integrates goods markets and asset markets to describe simultaneous determination of the... variance of the exchange rate affects the overall inflation rate for Greece She finds that the exchange rate variance has an influence on inflation quite apart from the direct effect of the rate of depreciation on inflation J David Richardson examines one key industry in the United States where international competition has been steadily increasing, the auto industry, He develops a unique set of disaggregated . Marston The University of Chicago Press Chicago and London RICHARD C. MARSTON is the James R. F. Guy Professor of Finance and Economics in the Wharton School of the University of Pennsylvania. and a research associate of the National Bureau of Economic Research. The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London 0 1988 by the National. Page Intentionally Left Blank Misalignment of Exchange Rates A National Bureau of Economic Research Project Report Misalignment of Exchange Rates: Effects on Trade and Industry Edited