Under the flexible exchange-rate system that now prevails around the world, if each country focuses its monetary policy on achieving ideal inflation and employment conditions at home, the result will be reasonably stable – or even so-called Pareto-optimal – macroeconomic conditions. To be sure, the US may respond to China’s devaluation by postponing interest-rate hikes or moderating the pace of its withdrawal from quantitative easing, and Japan may intensify its own QE to cope with negative spillovers.