Table of Contents

Contemporary Post Keynesian Analysis

Contemporary Post Keynesian Analysis

Edited by L. Randall Wray and Mathew Forstater

Original articles by leading scholars of post Keynesian economics make up this authoritative collection. Current topics of the greatest interest are covered, such as: perspectives on current economic policy; post Keynesian approaches to monetary theory and policy; economic development, growth and inflation; Kaleckian perspectives on distribution; economic methodology; and history of heterodox economic theory. The contributors explore a variety of prevailing issues including: wage bargaining and monetary policy in the EMU; the meaning of money in the internet age; stability conditions for small open economies; and economic policies of sustainable development in countries transitioning to a market economy. Other enduring matters are examined through the lens of economic theorists – Kaleckian dynamics and evolutionary life cycles; a comparison between Keynes’s and Hayek’s economic theories; and an analysis of the power of the firm based on the work of Joan Robinson, to name a few.

Chapter 8: Mexico: Strong Currency and Weak Economy

Arturo Huerta

Subjects: economics and finance, post-keynesian economics

Extract

Arturo Huerta THE IMPORTANCE OF NOMINAL EXCHANGE RATE STABILITY IN THE CONTEXT OF FINANCIAL LIBERALIZATION Financial liberalization, free capital mobility and the resulting internationalization of capital markets have increased the importance of managing the exchange rate. With currency devaluation in emerging market economies, financial investments lose in dollar terms; but with nominal exchange rate stability and appreciation they gain through increased profits in dollar terms. Exchange rate determination, therefore, becomes subordinated to the demands of international financial capital. Governments and central banks in emerging market economies are forced to work towards low inflation and to equalize their inflation with that of developed countries. The emphasis on inflation is forced upon them in order to avoid shocks in nominal exchange rate parity and to safeguard profitability conditions for international financial capital, thereby ensuring a positive capital flow to these countries. Exchange rate stability also becomes necessary in order to avoid speculative practices that are likely to cause instability in financial markets. POLICIES TO ACHIEVE EXCHANGE RATE STABILITY The Latin American economies do not have the macroeconomic, productive and domestic financial conditions to lower inflation and achieve nominal exchange rate stability via traditional means. Countries with low productivity and strong pressure on their macroeconomic fundamentals have been able to lower inflation through promoting capital inflow. They are then able to cover their current account deficit and increase international reserves in order to face attacks from fluctuations in international financial markets and to ensure...

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