Global finance 433 interest rate changes.If monetary expansion simply reduces national interest rates,chances are that most foreigners will be indifferent.If,however,it leads to currency depreciation in the expansionary country,foreigners are likely to be concerned about their resultant loss of competitiveness.20 Third,the focus on how macroeconomic policy takes effect through the exchange rate helps clarify some observed anomalies of the ACM world.If an American administration in the BCM world had pursued fiscal expansion and monetary stringency,the result might well have been that the policies canceled each other out:tight money would have reinforced the"crowding out"effects of the fiscal expansion.As it was,however,in the ACM world,the Reagan- Volcker fiscal expansion and monetary stringency of the early 1980s had a markedly different impact.Fiscal policy was largely financed by foreign borrowing,which reduced or eliminated the effects of crowding out and contributed to appreciation of the dollar.At the same time,tight money reinforced the rise of the dollar by strengthening the international investment attractiveness of dollar-denominated securities.The result was striking both on macroeconomic grounds,as the dollar soared and the United States became a major net debtor to the rest of the world,and on distributional grounds,as the dollar appreciation devastated U.S.producers of tradable goods(manufactur- ing and agriculture)and favored producers of nontradable goods and services (real estate,health care,leisure activities,and education). To summarize this section,financial capital moves across the borders of developed countries with great ease,while other asset markets are less integrated and some capital remains quite fixed.In this context,while global financial integration may reduce the efficacy of some sector-specific policies,it does not impede most of them.And while international financial integration does not make national macroeconomic policy obsolete,it does shift the effect of macroeconomic policy from the interest rate to the exchange rate.These features of the ACM world are expected to have a significant impact on the interests of various domestic economic interest groups.I return to ACM interest group competition over economic policy after first looking at the expected effects of the shift from BCM to ACM itself. The distributional effects of capital mobility The distinction I draw here is nuanced but important.On the one hand,I am interested in how economic agents are expected to act in a world characterized by capital mobility:What sorts of policies will be pursued by what sorts of groups and coalitions?On the other hand,I am interested in how the shift from 20.For an illuminating discussion of cross-border effects,see Michael Mussa,"Macroeconomic Interdependence and the Exchange Rate Regime,"in Rudiger Dornbusch and Jacob Frenkel, eds.,International Economic Policy:Theory and Evidence (Baltimore,Md.:Johns Hopkins University Press,1979),pp.160-204.Global finance 433 interest rate changes. If monetary expansion simply reduces national interest rates, chances are that most foreigners will be indifferent. If, however, it leads to currency depreciation in the expansionary country, foreigners are likely to be concerned about their resultant loss of competitivene~s.~~ Third, the focus on how macroeconomic policy takes effect through the exchange rate helps clarify some observed anomalies of the ACM world. If an American administration in the BCM world had pursued fiscal expansion and monetary stringency, the result might well have been that the policies canceled each other out: tight money would have reinforced the "crowding out" effects of the fiscal expansion. As it was, however, in the ACM world, the Reagan￾Volcker fiscal expansion and monetary stringency of the early 1980s had a markedly different impact. Fiscal policy was largely financed by foreign borrowing, which reduced or eliminated the effects of crowding out and contributed to appreciation of the dollar. At the same time, tight money reinforced the rise of the dollar by strengthening the international investment attractiveness of dollar-denominated securities. The result was striking both on macroeconomic grounds, as the dollar soared and the United States became a major net debtor to the rest of the world, and on distributional grounds, as the dollar appreciation devastated U.S. producers of tradable goods (manufactur￾ing and agriculture) and favored producers of nontradable goods and services (real estate, health care, leisure activities, and education). To summarize this section, financial capital moves across the borders of developed countries with great ease, while other asset markets are less integrated and some capital remains quite fixed. In this context, while global financial integration may reduce the efficacy of some sector-specific policies, it does not impede most of them. And while international financial integration does not make national macroeconomic policy obsolete, it does shift the effect of macroeconomic policy from the interest rate to the exchange rate. These features of the ACM world are expected to have a significant impact on the interests of various domestic economic interest groups. I return to ACM interest group competition over economic policy after first looking at the expected effects of the shift from BCM to ACM itself. The distributional effects of capital mobility The distinction I draw here is nuanced but important. On the one hand, I am interested in how economic agents are expected to act in a world characterized by capital mobility: What sorts of policies will be pursued by what sorts of groups and coalitions? On the other hand, I am interested in how the shift from 20. For an illuminating discussion of cross-border effects, see Michael Mussa, "Macroeconomic Interdependence and the Exchange Rate Regime," in Rudiger Dornbusch and Jacob Frenkel, eds., International Economic Policy: Theory and Evidence (Baltimore, Md.: Johns Hopkins University Press, 1979),pp. 160-204