I am grateful to Thomas Moutos and Sheila Dow of the Division of Economics, University of Stirling, and to the editors for their helpful comments on an earlier draft.
Open-economy macroeconomics (OEM) only became a separate area of research in the late 1960s and early 1970s. Until that time, and some might argue even today, closedeconomy macroeconomics (CEM) dominated. The rise of OEM has now reached the point where a number of textbooks are available outlining the subject area (for example, Dornbusch 1980; De Grauwe 1983; Rivera-Batiz and Rivera-Batiz 1985; Morley 1988; Shone 1989a), and there are many more in the area of international monetary economics and international finance (for example, Niehans 1984; Copeland 1989). This immediately raises the following questions. What is distinctive about OEM? Is OEM in some way different from CEM or does it simply use different techniques of investigation? Are the models used to analyse open economies different from those used to analyse closed economies? Are the policy conclusions of OEM different from those of CEM, or are the latter simply a special case of the former? Why is OEM a feature of the 1970s and 1980s and not the 1930s and 1940s? Finally, will macroeconomics in the future remain roughly in these two divisions: macroeconomics for closed economies and macroeconomics for open economies? These are just some of the questions that will be addressed in this chapter.