Quarterly Journal of Austrian Economics

The Insulation Argument in Neoclassical International Economics: A Critique

The Quarterly Journal of Austrian Economics
Downloads

 

Volume 8, No. 3 (Fall 2005)

 

The aim of this paper is to criticize the foundation and the relevance of the insulation argument. In what follows, I will attempt to show that: (1) The favor flexible exchange rates enjoy in the literature is in part a result of the confusion between devaluation and free exchange rates; (2) Asymmetric shocks cannot provide a basis for the insulation argument, for their meaning is either a definitional truism or simply absurd; (3) Devaluation cannot offset the impact of foreign trade shifts on the domestic structure of production, and it instead produces additional problems; (4) A policy of monetary nationalism cannot prevent foreign-engineered business cycles from affecting domestic economic conditions, even if this is the only (but neglected) instance when a case for insulation could be rightly made.

CITE THIS ARTICLE

Glavan, Bogdan. “The Insulation Argument in Neoclassical International Economics: A Critique.” The Quarterly Journal of Austrian Economics 8, No. 3 (Fall 2005): 3–19.

All Rights Reserved ©
What is the Mises Institute?

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

Become a Member
Mises Institute