This paper focuses on exchange rate economics. Two main views of exchange rate determination have evolved since the early 1970s: the monetary approach to the exchange rate (in flexible-price, sticky-price, and real interest differential formulations); and the portfolio balance approach. In this paper, the literature on these views is surveyed, followed by a discussion of the empirical evidence and likely future developments in the area of exchange rate determination. The literature on foreign exchange market efficiency, exchange rates and “news,” and international parity conditions is also reviewed.

This first issue of Volume 51 for 2004 includes a new paper by Peter B. Clark and Jacques J. Polak, along with a tribute from the Editor to Mr. Polak in honor of his 90th birthday. This issue also launches a new featured section, "Data Issues," which will be devoted in future issues to on-going discussions of the latest in econometric and statistical tools for economists, data puzzles, and other related topics of interest to researchers.

This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries

This special issue brings together world-renowned experts to provide a systematic and critical analysis of the costs and benefits of financial globalization. Contributors include Kenneth Rogoff, Maurice Obstfeld, Dani Rodrik, and Frederic S. Mishkin.

This economic journal contains theoretical and empirical analyses of varous macroeconomic issues. The studies are prepapred by IMF research staff or consultants. Subjects covered inclulde balance of payments and exchange rates, monetary systems and policies, public finances, international trade, economic growth, and some sectoral analyses. The last issue of the year contains an index to the volume. Approximately 200 pages in each issue.

Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20–25 percent of GDP; however, debt becomes irrelevant above 70–80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one.

This paper analyzes some leading indicators of currency crises, and proposes a specific early warning system. This system involves monitoring the evolution of several indicators that tend to exhibit an unusual behavior in the periods preceding a crisis. When an indicator exceeds a certain threshold value, this is interpreted as a warning “signal” that a currency crisis may take place. The variables that have the best track record within this approach include exports, deviations of the real exchange rate from trend, and the ratio of broad money to gross international reserves, output, and equity prices.