1. For further discussion see W.M. Corden (1985) Inflation, Exchange Rates and the World Economy: Lectures on International Monetary Economics, 3rd ed. (Oxford: Clarendon Press).
2. Modern exchange rate theory starts from the proposition that exchange rates are determined in asset markets. See, for example, R. MacDonald (1988) Floating Exchange Rates: Theories amp; Evidence (London: Unwin Hyman).
3. D. Begg (1989) ‘Floating Exchange Rates in Theory and Practice’, Oxford Review of Economic Policy, 5, no. 3, Autumn, pp. 24–39.
4. For an analysis of the wealth effects associated with cumulative current account imbalances see R. Dornbusch and S. Fischer (1980) ‘Exchange rates and the Current Account’, American Economic Review, 70, no. 5, December, pp. 960–71.
5. A possible mechanism for this is suggested by McKinnon: R.I. McKinnon (1982) ‘Currency Substitution and Instability in the World Dollar Market’, American Economic Review, 72, no. 3, June, pp. 320–33.