International finance and macroeconomics.

• Position: National Bureau of Economic Research's Program on International Finance and Macroeconomics

On March 20, more than 30 members and guests of the NBER's Program on International Finance and Macroeconomics met to discuss their recent research. Charles M. Engel, of NBER and the University of Washington, and Andrew K. Rose, of NBER and the University of California, Berkeley, organized the meeting and chose the following papers for presentation:

V.V. Chari and Patrick J. Kehoe, Federal Reserve Bank of Minneapolis, "On the Need for Fiscal Constraints in a Monetary Union"

Discussants: Rudiger Dornbusch, NBER and MIT, and Nouriel Roubini, NBER and New York University

Jose M. Campa and Holger C. Wolf, NBER and New York University, "Is Real Exchange Rate Mean Reversion Caused by Arbitrage?"

Discussants: Menzie D. Chinn, NBER and University of California, Santa Cruz, and Charles M. Engel

Roberto Rigobon, MIT, "Informational Speculative Attacks: Good News Is No News"

Discussants: Maurice Obstfeld, NBER and University of California, Berkeley, and Andres Velasco, NBER and New York University

Shang-Jin Wei, NBER and Harvard University, and Junshik Kim, Harvard University, "The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?"

Discussants: Linda S. Goldberg, Federal Reserve Bank of New York, and Richard K. Lyons, NBER and University of California, Berkeley

Giancarlo Corsetti, Yale University, and Paolo A. Pesenti, NBER and Princeton University, "Welfare and Macroeconomic Interdependence"

Discussants: Caroline Betts, University of Southern California, and Dale Henderson, Federal Reserve Board

Chari and Kehoe show that the desirability of debt constraints in monetary unions depends critically on the extent of commitment of the monetary authority. If the monetary authority can commit to its policies, then debt constraints will only impose costs. If the monetary authority cannot commit, however, then there is a free-rider problem in fiscal policy, and debt constraints may be desirable.

Campa and Wolf address a presumption in the theory of purchasing power parity: that the presence of arbitrage opportunities in goods markets causes mean reversion in the exchange rate. Looking at a monthly panel of the G-7 countries from 1960 to 1996, they find consistent mean reversion in bilateral real exchange rates. However, this behavior of exchange rates is not correlated with trade flows. Deviations of trade and of real exchange rates from trend are virtually uncorrelated. Large trade deviations do not seem either to cause or to...