ABSTRACT
In Chapter 6 we discussed closed-economy macroeconomic theory—macroeconomic theory for an economy in which international trade and financial asset flows are so minor that their effects on the domestic economy can be safely ignored. In Chapter 8 we discussed the theory of the international financial system and proposed a revised theory of foreign exchange rate determination. We turn now to open-economy macroeconomics, the combination of the two. The consequences of our revised theory of foreign exchange rate determination for open-economy macroeconomics are serious and will be discussed in this chapter.
