The essence of the regime of unmanaged floating that prevailed among the major currencies from March 1973 until the Plaza Agreement in 1985 was that the exchange rate was treated as a residual in the process of macroeconomic policy determination. Admittedly there were occasions-such as October 1976 in the case of the pound sterling and October 1978 in the cases of both the U.S. dollar and the Swiss franc-when particular countries became so concerned with a misalignment of their currency that they were forced to abandon benign (or malign) neglect, but such incidents were episodic. Views about a proper or desirable level of the exchange rate played no systematic role in policy formulation. Section I explains why I judge the performance of unmanaged floating to have been unsatisfactory. Section II lists the real social benefits that exchange rate flexibility can afford, which should be preserved by any reformed system. Section III describes the target zone proposal and explains why it would preserve the real benefits of flexibility while overcoming the weaknesses of unmanaged floating. Section IV sketches a possible set of comprehensive principles for policy coordination of which target zones would be one natural element.

Journal Article Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing Get access Stephen D. Williamson Stephen D. Williamson Queen's University and University of Western Ontario Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 102, Issue 1, February 1987, Pages 135–145, https://doi.org/10.2307/1884684 Published: 01 February 1987

In this paper, a general-equilibrium business- cycle model is construct ed that, when subjected to real disturbances, mimics observed qualita tive comovements among real output, money, business failures, risk pr emia, intermediary loans, and prices. In contrast, monetary disturban ces generate cycles that have several inconsistencies with empirical evidence, thus providing support for real business-cycle theory at th e expense of monetary theories of the business cycle. Financial inter mediation arises endogenously in the model and intermediation matters for business-cycle behavior. A credit supply mechanism acts in tande m with an intertemporal substitution effect in propagating stochastic disturbances. Copyright 1987 by University of Chicago Press.