Lessons from monetary and real exchange rate economics

This article is intended to be a sort of flyover, examining certain key aspects of monetary and real exchange rate economics from a convenient distance. In it the author tries to avoid getting into technicalities that are interesting mainly to specialists. He focuses instead on essentials that are critical to a proper understanding of the economic processes involved, and on a few real-world examples that show the usefulness and relevance of our fundamental theoretical constructs. Too often today students of international economics learn sophisticated theory dressed in mathematical garb, but they fail to recall the fundamental propositions of monetary economics and the importance of real exchange rate adjustment in bringing about equilibrium in the balance of payment. Focusing on fundamental principles will go a long way toward avoiding costly policy mistakes.