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The International Economy: Bind or Boon?

Published online by Cambridge University Press:  01 January 2020

Jagjit S. Chadha
Jagjit S. Chadha*
Affiliation:
NIESR and Centre for Macroeconomics
*
E-mail: J.Chadha@niesr.ac.uk
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Abstract

The Institute has long examined overseas developments in order to understand better domestic macroeconomic dynamics. The organising principle for much of the postwar period was simply the impact on net trade with an implicit view on whether the exchange rate was at an appropriate level and, as such, the external sector was viewed as a constraint on domestic activity. Increasingly integrated factor markets in the modern era of globalisation means that the overseas sector plays a fundamental role in the evolution of both aggregate demand and supply in the UK economy and it is increasingly hard to disentangle the overseas from the domestic sectors. It is not so much that we should reverse this integration but more how to design policy to limit any undesirable consequences on regional and income distribution, as well as aggregate fluctuations in activity.

Keywords

Mundell-Fleming modelSalter-Swan diagramexternal positionB27E32F32
Type
Research Articles
Information
National Institute Economic Review , Volume 246 , November 2018 , pp. R50 - R63
Copyright
Copyright © 2018 National Institute of Economic and Social Research

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Footnotes

With thanks for comments from Barry Naisbitt and Christoph Thoenissen. An earlier version of this article was given as a Gresham Lecture on 27 April 2017: The External Financing Position. I am grateful for research assistance from Paul Labonne.

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