International Finance and Macroeconomics.

• Position: Bureau News

The NBER's Program on International Finance and Macroeconomics met in Cambridge on March 21. Richard Lyons, NBER and University of California, Berkeley, and Andres Velasco, NBER and Harvard University, organized this program:

Andrew Atkeson, University of California, Los Angeles, and Patrick Kehoe, NBER and University of Minneapolis, "On the Benefits to Transparency in a Monetary Policy Instrument"

Discussant: Jon Faust, Federal Reserve Board

Aaron Tornell, NBER and University of California, Los Angeles, and Frank Westermann, University of Munich, "The Credit Channel in Middle Income Countries"

Discussant: Fernando Broner, University of Maryland

Cedric Tille, Federal Reserve Bank of New York, "How Valuable is Exchange Rate Flexibility? Optimal Monetary Policy under Sectoral Shocks?"

Discussant: Charles Engel, NBER and University of Wisconsin

Kathryn M.E. Dominguez and Linda L. Tesar, NBER and University of Michigan; and Sebastian Auguste and Herman Kamil, University of Michigan, "Cross-Border Trading as a Mechanism for Capital Flight: ADRs, CEDEARS and the Argentine Crisis"

Discussant: Sergio Schmukler, The World Bank

Mark Aguiar and Gita Gopinath, University of Chicago, "Fire-Sale FDI and Liquidity Crises"

Discussant: Bernard Dumas, NBER and INSEAD

Helene Rey, NBER and Princeton University; and Jean Imbs, Haroon Mumtaz, and Morten Ravn, London School of Business, "PPP Strikes Back: Aggregation and the Real Exchange Rate" (NBER Working Paper No. 9372)

Discussant: Shang-Jin Wei, NBER and Harvard University

Monetary instruments differ in their transparency -- how easy it is for the public to monitor the instrument -- and their tightness -- how closely linked they are to inflation. Tightness is always desirable in a monetary policy instrument. Atkeson and Kehoe show that transparency is desirable when there is a credibility problem, in that the government cannot commit to its policy. They illustrate their argument by considering a classic question in international economics: is the exchange rate or the money growth rate the better instrument of monetary policy? Their analysis suggests that the greater transparency of exchange rates means that if both instruments are equally tight, the exchange rate is preferred.

With inflation under control in many middle income countries (MICs), swings in credit, investment, and asset prices now have the most effect on these countries. Tornell and Westermann present a framework for analyzing how credit market...