This paperback edition consists of the first three parts of Allen and Kenen's major book, Asset Markets, Exchange Rates, and Economic Integration. These three parts stand alone, as the authors intended and as reviewers have commented. In parts four and five of that volume they extend their model to two countries trading with the outside world and analyze questions of economic integration. The authors synthesize and extend recent developments in international monetary theory using a general model of an open economy that trades goods and assets with the outside world. The model embodies the asset market or portfolio approach to analyzing balance-of-payments adjustment. Exchange rates are determined in the short run by conditions in the asset markets and in the long run by conditions in the goods markets. The goods markets include an export good, and import good, and a nontradeable good. Allen and Kenen show that different assumptions about the substitutability between goods or between assets can generate several popular models as special cases of their own.

This introduction to international economics presents the relevant theory rigorously but accessibly and relies mainly on diagrammatic techniques, not mathematics. It covers trade theory and policy, including recent work on imperfect competition. There are chapters on the history of trade policy and topical issues such as NEOPHYTE, reforms in Eastern Europe, and the growing use of non-tariff barriers. Kenen also covers international monetary theory and policy, focusing on payments adjustment under fixed and floating exchange rates, the functioning of monetary and fiscal policies in open economies, and the effects of expectations on exchange-rate behaviour. There are chapters on the evolution of the monetary system and on current issues such as policy coordination and European monetary union. Kenen devotes special attention to the assumptions underlying basic propositions and covers policy issues extensively.