International Finance: Theory and Policy, 10th edition

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Reveal theory and applications of international finance
The text presents a balance of theoretical and practical coverage of international finance. Chapters on core theory are followed by a series of application chapters that confront policy questions using the newest empirical work, data, and policy debates. This structure enables students to grasp theoretical concepts and then see those same concepts in action, aiding retention and highlighting the relevance of course material. Highlights include:

• A unified model of open-economy macroeconomics that provides students with a cohesive approach to the theory, based on an asset-market approach to exchange rate determination with expectations in a central role. • A discussion of the international monetary experience that stresses the idea that different exchange rate systems lead to different policy coordination problems.

Give students learning tools to master course material
Chapter-opening Learning Goals list the essential concepts so students understand what they need to take away from each chapter.
Case Studies illustrate theory using real-world applications and provide important historical context.
Special Boxes offer vivid illustrations of points made in the text. Topics include the political backdrops underlying the theories of Ricardo and Hume, the story of Bolivian hyperinflation, and adjustments to asymmetric shocks.
End-of-chapter Problems, many of which cite real data or policies, allow students to practice what they’re learning. They range from routine computational drills to more analytical questions and problems. All end-of-chapter problems are included in MyEconLab so that instructors can assign homework without needing to grade students’ work by hand.
Further Reading sections at the end of each chapter provide annotated bibliographies of both seminal works and recent articles, encouraging students to explore the material further.
Provide the most updated coverage
NEW! In order to ensure that students are up to date on key issues, the authors have thoroughly updated the content and extensively revised several chapters. These revisions respond both to users’ suggestions and to some important developments on the theoretical and practical sides of international finance. The most far-reaching changes are the following:
NEW! In response to the global economic crisis of 2007-09, countries throughout the world adopted countercyclical fiscal responses. Renewed academic research on the size of the fiscal multiplier soon followed, although most of it was set in the closed economy, and so ignored the exchange rate effects stressed in this chapter’s model. Chapter 6, Output and the Exchange Rate in the Short Run, now includes a new Case Study on the size of the fiscal multiplier in the open economy. In line with recent academic literature, which focuses on fiscal policy at the zero lower interest-rate bound, the discussion has been integrated with the model of the liquidity trap.
NEW! Chapter 7, Fixed Exchange Rates and Foreign Exchange Intervention, now includes additional discussion of “inflow attacks” on exchange rates being held at appreciated levels through foreign exchange intervention and other measures, a phenomenon seen in China and other countries. A new Case Study focuses on the Swiss National Bank’s policy of capping the Swiss franc’s level against the euro.
NEW! In Chapter 8, International Monetary Systems: An Historical Overview, a detailed derivation of an open economy’s multi-period intertemporal budget constraint now complements the discussion of external balance. (Instructors who do not want to cover this relatively more technical material can skip it without loss of continuity.) The intertemporal analysis is applied to analyze the sustainability of New Zealand’s persistent foreign borrowing. In addition, the chapter’s discussion of recent events in the global economy has been updated.
NEW! In the tenth edition, the earlier order of Chapters 9 and 10 has been reversed. The book now covers the international capital market before covering optimum currency areas and the euro crisis. The authors’ reasoning is that the euro crisis is in large part a crisis of the banks, which students cannot understand without a good prior grasp of international banking and its problems.
NEW! Consistent with this approach, the new Chapter 9, Financial Globalization: Opportunity and Crisis, covers bank balance sheets and bank fragility in detail, with emphasis on bank capital and capital regulation. Ever since this book’s first edition we have stressed the global context of banking regulation. In this edition we explain the “financial trilemma,” which forces national policymakers to choose at most two from among the potential objectives of financial openness, financial stability, and national control over financial policy.
NEW! The crisis in the euro area escalated dramatically after the last edition of this book went to press. For this new edition, coverage of the euro crisis has been brought up to date in Chapter 10, Optimum Currency Areas and the Euro. The chapter presents material on initiatives for closer policy coordination in the euro countries, such as banking union. The theoretical discussion of optimum currency areas also reflects lessons of the euro crisis.
NEW! In Chapter 11, Developing Countries: Growth, Crisis, and Reform, the coverage of capital flows to developing countries now includes recent research on the small size of those flows, as well as their paradoxical tendency to favor low-growth over high-growth developing economies. The authors illuminate the close link between theories of capital allocation to developing countries and theories of the cross-country distribution of income.
NEW! In addition to structural changes, the authors have incorporated updated coverage to maintain currency and relevance. In particular, the revised tenth edition describes the evolving infrastructure of international bank regulation, including Basel III and the Financial Stability Board  (Chapter 10).

Provide the most updated coverage
NEW! In order to ensure that students are up to date on key issues, the authors have thoroughly updated the content and extensively revised several chapters. These revisions respond both to users’ suggestions and to some important developments on the theoretical and practical sides of international finance. The most far-reaching changes are the following:
NEW! In response to the global economic crisis of 2007-09, countries throughout the world adopted countercyclical fiscal responses. Renewed academic research on the size of the fiscal multiplier soon followed, although most of it was set in the closed economy, and so ignored the exchange rate effects stressed in this chapter’s model. Chapter 6, Output and the Exchange Rate in the Short Run, now includes a new Case Study on the size of the fiscal multiplier in the open economy. In line with recent academic literature, which focuses on fiscal policy at the zero lower interest-rate bound, the discussion has been integrated with the model of the liquidity trap.
NEW! Chapter 7, Fixed Exchange Rates and Foreign Exchange Intervention, now includes additional discussion of “inflow attacks” on exchange rates being held at appreciated levels through foreign exchange intervention and other measures, a phenomenon seen in China and other countries. A new Case Study focuses on the Swiss National Bank’s policy of capping the Swiss franc’s level against the euro.
NEW! In Chapter 8, International Monetary Systems: An Historical Overview, a detailed derivation of an open economy’s multi-period intertemporal budget constraint now complements the discussion of external balance. (Instructors who do not want to cover this relatively more technical material can skip it without loss of continuity.) The intertemporal analysis is applied to analyze the sustainability of New Zealand’s persistent foreign borrowing. In addition, the chapter’s discussion of recent events in the global economy has been updated.
NEW! In the tenth edition, the earlier order of Chapters 9 and 10 has been reversed. The book now covers the international capital market before covering optimum currency areas and the euro crisis. The authors’ reasoning is that the euro crisis is in large part a crisis of the banks, which students cannot understand without a good prior grasp of international banking and its problems.
NEW! Consistent with this approach, the new Chapter 9, Financial Globalization: Opportunity and Crisis, covers bank balance sheets and bank fragility in detail, with emphasis on bank capital and capital regulation. Ever since this book’s first edition we have stressed the global context of banking regulation. In this edition we explain the “financial trilemma,” which forces national policymakers to choose at most two from among the potential objectives of financial openness, financial stability, and national control over financial policy.
NEW! The crisis in the euro area escalated dramatically after the last edition of this book went to press. For this new edition, coverage of the euro crisis has been brought up to date in Chapter 10, Optimum Currency Areas and the Euro. The chapter presents material on initiatives for closer policy coordination in the euro countries, such as banking union. The theoretical discussion of optimum currency areas also reflects lessons of the euro crisis.
NEW! In Chapter 11, Developing Countries: Growth, Crisis, and Reform, the coverage of capital flows to developing countries now includes recent research on the small size of those flows, as well as their paradoxical tendency to favor low-growth over high-growth developing economies. The authors illuminate the close link between theories of capital allocation to developing countries and theories of the cross-country distribution of income.
NEW! In addition to structural changes, the authors have incorporated updated coverage to maintain currency and relevance. In particular, the revised tenth edition describes the evolving infrastructure of international bank regulation, including Basel III and the Financial Stability Board  (Chapter 10).