Money, Exchange Rates, and Output

Guillermo Calvo, who foresaw the financial crisis that followed the devaluation ofMexico's peso, has spent much of his career thinking beyond the conventional wisdom. In a quiet andunderstated way, Calvo has made seminal contributions to several major research areas inmacroeconomics, particularly monetary policy, exchange rates, public debt, and stabilization inLatin America and post-communist countries. Money, Exchange Rates, and Output brings together thesecontributions in a broad selection of the author's work over the past two decades. There areintroductions to each section, and an introduction to the entire collection that outlines theconnections throughout and surveys the current state of macroeconomic theory.Calvo, an advocate ofthe "Chicago school" of rational expectations, uses elements of this approach to understand economicdevelopment. While he is a top macroeconomics theorist, his models are always intertwined withpolicy discussion. He pushes readers to combine knowledge of real world facts -- of institutions,traditions, and culture, in addition to statistics - with theory.One focus of this collection is onthe role of credibility in policy-making. Calvo analyzes the origins and macroeconomic consequencesof credibility problems. He also shows how monetary and trade theory can fail when the public doesnot fully believe in policy announcements. A second focus is on equilibrium multiplicity. Calvo usesmodels with multiple equilibria to identify factors that cause anomalous behavior. He discussesmultiple equilibria in abstract terms as well as in terms of its relevance to understanding domesticpublic debt.Specific issues covered are predetermined exchange rates, currency substitution,domestic public debt and seigniorage, and stabilizing transition economies.