Policy makers in small open economies continue to manage exchange rates as though there is a relationship between the US dollar value of the domestic currency (if they have one) and the performance of the economy. This paper, which presents some essential messages of my recent book Development and Stabilization in Small Open Economies, explains why that is not the case. We show how the conventional ways of structuring economic relationships should be modified to faithfully reflect the realities of the small economy, and we explain some implications for the design of policies for development, as well as the assessment of economic performance.
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