Economic Disturbances and Equilibrium in an Integrated Global Economy

Chapter 21

Trade Policy, Protectionism, and Currency Manipulation

Abstract

A commonly held assumption is that changes in the nominal exchange rate alter an economy’s terms of trade and as such by manipulating the exchange rate a country can affect changes in its trade balance. Devaluations are one extreme and presumably a “one time” application of this view. While currency manipulation is considered the continuous application of a policy aimed to alter a country’s terms of trade and thus trade balance through a deliberate exchange rate manipulation. Elsewhere, we have shown that the equivalence between the terms of trade and exchange rates depends on the organization of the monetary system and whether the monetary authorities can affect changes ...