The point of departure

When we began this book, our aim was rather modest. We sought to reassess the effectiveness of national monetary and fiscal policies when capital markets are closely integrated and to use our findings in appraising the costs and benefits of economic unions, especially monetary unions. One of us had been working on the implications of capital mobility for the effectiveness of national policies. The other had been working on the problems of monetary unification. It looked as though we might put our work together once we had constructed a macroeconomic model that would be receptive to our questions. As we went along, however, we grew more ambitious. Encouraged by our colleagues and by each other, we came to believe that our model could be put to more extensive use. It was indeed becoming a synthesis of recent research on the theory of the balance of payments and exchange-rate determination. What had started as a monograph was becoming a treatise and might even be able to respond to Haberler's suggestion: “What would be welcome,” he wrote recently, “is an updated version of Meade's classic treatise.”

The reader will have to decide if our response has been successful. First, however, we have to explain in what ways we have tried to “update” Meade, for we have not followed Haberler's prescription.