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          Economic Policy Challenges in an Open Economy: Coherence between Trade and Finance (English)
          Presentation by Heiner Flassbeck, UNCTAD, 2004
          Categories: Competitiveness, Macroeconomic Policy

          What: This paper emphasizes the importance of understanding competitiveness from the perspective of interdependence and analyses its applicability to developing countries. It explores the possibility and policy implications of using currency undervaluation as a general solution to maintaining competitiveness. Who: Can be used for a course on competitiveness. How: For a course on competition and competition policy in developing countries.

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          The Exchange Rate: Economic policy tool or market price? (English)
          Discussion paper by Heiner Flassbeck, UNCTAD, 2001, 52 pages
          Categories: Macroeconomic Policy

          There has been broad consensus among economists for decades that changes in the value of money over time cannot be used as an economic policy tool because people would quickly learn to adapt to any attempt to exploit the money illusion by inflationary policy. Paradoxically, the majority of economic analyses have never questioned the ability of policy makers to exploit money illusion over prolonged periods of time if the subject is the change in the value of money in space, i.e. exchange rate changes. The paper argues that the latter have to be treated in the same way as the former if economic theory is to be consistent. As a consequence, exchange rate changes can only be used to compensate for inflation differentials between countries, and nothing else. The paper draws on the European experience up to monetary union, as well as on experience in developing countries with different exchange rate regimes.