International Finance and Macroeconomics.

• Position: Conferences

The NBER's Program on International Finance and Macroeconomics met in Cambridge on March 22. Research Associates Richard K. Lyons and Andrew K. Rose, both of the University of California, Berkeley, organized this program:

Michele Cavallo, Fabrizio Perri, and Kate Schneider-Kisselev, New York University, and Nouriel Roubini, NBER and New York University, "Rate Overshooting and the Costs of Floating"

Philippe Martin, Federal Reserve Bank of New York, and Helene Rey, NBER and Princeton University, "Financial Globalization and Emerging Markets: With or Without Crash?"

Discussants: Kristin Forbes, U.S. Department of the Treasury

Discussants: Aaron Tornell, NBER and University of California, Los Angeles, and Enrique Mendoza, NBER and University of Maryland

Michael B. Devereux, University of British Columbia, and Charles M. Engel, NBER and University of Wisconsin, "Exchange Rate Pass-Through, Exchange Rate Volatility, and Exchange Rate Disconnect"

Kenneth A. Froot, NBER and Harvard University, and Tarun Ramadorai, Harvard University, "Currency Returns, Institutional Investor Flows, and Exchange-Rate Fundamentals"

Discussants: Pierre-Olivier Gourinchas, NBER and Princeton University, and Alan Stockman, NBER and University of Rochester

Discussants: Francis X. Diebold, NBER and University of Pennsylvania, and Bernard Dumas, NBER and INSEAD

David C. Parsley, Vanderbilt University, and Shang-Jin Wei, International Monetary Fund, "Currency Arrangements and Goods Market Integration: A Price-Based Approach"

Discussants: Linda S. Goldberg, Federal Reserve Bank of New York, and John Rogers, Federal Reserve Board

Currency crises usually are associated with large real depreciations. In some countries, real depreciations are perceived to be very costly ("fear of floating"); in this paper, Cavallo, Kisselev, Perri, and Roubini try to understand the reasons behind this fear. They first look at episodes of currency crises in the 1990s and establish that countries entering a crisis with high levels of foreign debt tend to experience large real exchange rate overshooting (devaluation in excess of the long-run equilibrium level) and large output contractions. The authors then develop a model of currency crises that helps them understand this. The key element of the model is the presence of a margin constraint on the domestic country. Real devaluations, by reducing the value of domestic assets relative to international liabilities, make countries with high foreign...