Modelo Mundell-Fleming (2)
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The document discusses several key concepts in open macroeconomics including: 1) The Mundell-Fleming model which shows the relationship between fiscal policy, interest rates, output, and exchange rates under flexible and fixed exchange rate regimes. 2) Under flexible exchange rates, an increase in government spending leads to an appreciation of the currency. Under fixed exchange rates it puts pressure on the exchange rate. 3) Other open macroeconomic concepts discussed include purchasing power parity, interest rate parity, policy credibility, and elements that determine exchange rate regimes.
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Mundell-Fleming (2)
The document discusses several key concepts in open macroeconomics including:
1) The Mundell-Fleming model which shows the relationship between fiscal policy, interest rates, output, and exchange rates under flexible and fixed exchange rate regimes.
2) Under flexible exchange rates, an increase in government spending leads to an appreciation of the currency. Under fixed exchange rates it puts pressure on the exchange rate.
3) Other open macroeconomic concepts discussed include purchasing power parity, interest rate parity, policy credibility, and elements that determine exchange rate regimes.
Mundell
The document discusses several topics related to open economies and exchange rate regimes:
1) It examines the Mundell-Fleming model which models a small open economy using IS-LM curves with the exchange rate as an additional variable. Case studies on currency crises in Mexico and Asia are summarized.
2) Issues related to floating vs fixed exchange rates and the impossible trinity are covered. Maintaining a fixed exchange rate limits independent monetary policy.
3) The Chinese currency controversy is discussed, noting China fixed its currency for years while accumulating dollar reserves, to the criticism of some arguing it was undervalued.
Is lm-fx
1. The document discusses goods market equilibrium using the Keynesian cross model. It shows how equilibrium occurs at the point where aggregate demand equals real output (Y).
2. It then derives the IS curve, showing the combinations of interest rates (i) and output (Y) that maintain equilibrium in both the goods market and foreign exchange market. The IS curve slopes downward, as lower interest rates increase investment and the trade balance via currency depreciation.
3. Similarly, the LM curve is derived from money market equilibrium, showing the combinations of i and Y that balance money demand and supply. The LM curve slopes upward, as higher output increases money demand and requires higher interest rates to maintain equilibrium.
MACRO ECONOMICS
The Mundell-Fleming model shows that the effects of fiscal and monetary policy on a small open economy depend on whether the exchange rate is floating or fixed. Under floating rates, fiscal policy has little effect while monetary policy influences output by changing the exchange rate. Under fixed rates, monetary policy has little effect while fiscal policy can influence output. The model incorporates interest rate differentials and shows that expectations of currency depreciation can become self-fulfilling.
Mundell-Fleming without the LM curve: exogenous interest rate in an open economy
Mundell-Fleming without the LM curve: exogenous interest rate in an open economyGrupo de Economia Política IE-UFRJ
In this paper we evaluate critically the popular Mundell-Fleming model from the standpoint the exogenous interest rate heterodox approach. We criticize the assumptions of exogenous money supply, "perfect" international capital markets and inelastic exchange rate expectations. We show that in a more realistic framework none of the main results of the Mundell-Fleming model on the relative effectiveness of fiscal and monetary policies are valid, either in floating and fixed exchange rate regimes. We conclude that ,within certain very asymmetric bounds, the central bank has the power to determine the domestic interest rate exogenously even in open economy with free capital mobility and that there is no automatic market mechanism to ensure the automatic adjustment of the interest rate and exchange rate to sustainable levels.Mundell-Fleming Presentation
A somewhat basic overview of the workings behind the Mundell-Fleming model under both flexible and fixed exchange rates.
MUNDELL FLEMING MODEL
The Mundell-Fleming model is an extension of the IS-LM model that includes the joint determination of net exports and currency value. It suggests that fiscal expansion with monetary contraction would boost the currency value and reduce net exports, while fiscal contraction and monetary expansion would boost net exports and reduce the currency value. However, expectations play a major role in determining outcomes. Under Reagan, expectations of growth from tax cuts led to a higher dollar and lower net exports, while under Clinton, expectations of growth from spending cuts had the same effect despite different policies.
MACROECONOMICS-CH12
This document summarizes the Mundell-Fleming model, which analyzes how fiscal, monetary, and trade policies affect aggregate demand in a small open economy. The model shows that under floating exchange rates, fiscal policy has no effect on output, while monetary policy shifts demand between domestic and foreign goods. Under fixed exchange rates, fiscal policy impacts output while monetary policy does not. Trade restrictions can boost domestic output under fixed but not floating rates. The document also discusses interest rate differentials and currency crises using Mexico's 1994 peso crisis as a case study.
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Mundell-Fleming (2)
The document discusses several key concepts in open macroeconomics including:
1) The Mundell-Fleming model which shows the relationship between fiscal policy, interest rates, output, and exchange rates under flexible and fixed exchange rate regimes.
2) Under flexible exchange rates, an increase in government spending leads to an appreciation of the currency. Under fixed exchange rates it puts pressure on the exchange rate.
3) Other open macroeconomic concepts discussed include purchasing power parity, interest rate parity, policy credibility, and elements that determine exchange rate regimes.
Mundell
The document discusses several topics related to open economies and exchange rate regimes:
1) It examines the Mundell-Fleming model which models a small open economy using IS-LM curves with the exchange rate as an additional variable. Case studies on currency crises in Mexico and Asia are summarized.
2) Issues related to floating vs fixed exchange rates and the impossible trinity are covered. Maintaining a fixed exchange rate limits independent monetary policy.
3) The Chinese currency controversy is discussed, noting China fixed its currency for years while accumulating dollar reserves, to the criticism of some arguing it was undervalued.
Is lm-fx
1. The document discusses goods market equilibrium using the Keynesian cross model. It shows how equilibrium occurs at the point where aggregate demand equals real output (Y).
2. It then derives the IS curve, showing the combinations of interest rates (i) and output (Y) that maintain equilibrium in both the goods market and foreign exchange market. The IS curve slopes downward, as lower interest rates increase investment and the trade balance via currency depreciation.
3. Similarly, the LM curve is derived from money market equilibrium, showing the combinations of i and Y that balance money demand and supply. The LM curve slopes upward, as higher output increases money demand and requires higher interest rates to maintain equilibrium.
MACRO ECONOMICS
The Mundell-Fleming model shows that the effects of fiscal and monetary policy on a small open economy depend on whether the exchange rate is floating or fixed. Under floating rates, fiscal policy has little effect while monetary policy influences output by changing the exchange rate. Under fixed rates, monetary policy has little effect while fiscal policy can influence output. The model incorporates interest rate differentials and shows that expectations of currency depreciation can become self-fulfilling.
Mundell-Fleming without the LM curve: exogenous interest rate in an open economy
Mundell-Fleming without the LM curve: exogenous interest rate in an open economyGrupo de Economia Política IE-UFRJ
In this paper we evaluate critically the popular Mundell-Fleming model from the standpoint the exogenous interest rate heterodox approach. We criticize the assumptions of exogenous money supply, "perfect" international capital markets and inelastic exchange rate expectations. We show that in a more realistic framework none of the main results of the Mundell-Fleming model on the relative effectiveness of fiscal and monetary policies are valid, either in floating and fixed exchange rate regimes. We conclude that ,within certain very asymmetric bounds, the central bank has the power to determine the domestic interest rate exogenously even in open economy with free capital mobility and that there is no automatic market mechanism to ensure the automatic adjustment of the interest rate and exchange rate to sustainable levels.Mundell-Fleming Presentation
A somewhat basic overview of the workings behind the Mundell-Fleming model under both flexible and fixed exchange rates.
MUNDELL FLEMING MODEL
The Mundell-Fleming model is an extension of the IS-LM model that includes the joint determination of net exports and currency value. It suggests that fiscal expansion with monetary contraction would boost the currency value and reduce net exports, while fiscal contraction and monetary expansion would boost net exports and reduce the currency value. However, expectations play a major role in determining outcomes. Under Reagan, expectations of growth from tax cuts led to a higher dollar and lower net exports, while under Clinton, expectations of growth from spending cuts had the same effect despite different policies.
MACROECONOMICS-CH12
This document summarizes the Mundell-Fleming model, which analyzes how fiscal, monetary, and trade policies affect aggregate demand in a small open economy. The model shows that under floating exchange rates, fiscal policy has no effect on output, while monetary policy shifts demand between domestic and foreign goods. Under fixed exchange rates, fiscal policy impacts output while monetary policy does not. Trade restrictions can boost domestic output under fixed but not floating rates. The document also discusses interest rate differentials and currency crises using Mexico's 1994 peso crisis as a case study.
21 the mundell fleming model
The document summarizes key concepts from chapter twelve of Mankiw's macroeconomics textbook on aggregate demand in an open economy. It introduces the Mundell-Fleming model and its assumptions. It shows how fiscal and monetary policy impact the economy differently under floating versus fixed exchange rates. Specifically, fiscal policy is powerful under fixed rates but monetary policy is powerful under floating rates. It also examines the effects of changes in the exchange rate, interest rates, money supply, and price levels in the Mundell-Fleming model framework.
Mundell fleming model
The Mundell-Fleming model is an extension of the IS-LM model that accounts for an open economy with international capital flows and exchange rates. It shows how fiscal and monetary policy can affect output and exchange rates under both fixed and flexible exchange rate regimes. Under flexible exchange rates, expansionary domestic policies may be offset by currency appreciation, while under fixed rates they may lead to balance of payments deficits. The model suggests using different combinations of fiscal and monetary policies to achieve objectives like boosting output while maintaining a stable currency value.
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The document provides an overview of the Mundell-Fleming model, which analyzes the effects of fiscal and monetary policy in a small open economy with perfect capital mobility. It describes the IS* and LM* curves and how they determine equilibrium income and exchange rates. Key points covered include: fiscal policy cannot affect output, while monetary policy impacts output by changing the exchange rate; floating exchange rates allow monetary policy flexibility; and fixed rates make fiscal policy more effective at changing output.
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1) Vietnam used dollarization and exchange rate management to successfully reduce inflation from over 350% in 1988 to under 10% in the 1990s.
2) A model is developed showing that inflation in Vietnam was driven by excess money supply and exchange rate fluctuations.
3) Empirical analysis estimates that a 25% depreciation of the Vietnamese currency in 1997-1998 led to an additional cumulative inflation of 13% over that period.
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- Equilibrium occurs where total desired spending equals total production in the economy. In the example, equilibrium income is calculated to be $3,000.
- The model shows that at the level of equilibrium income, total leakages from the economy in the form of saving, imports and taxes must equal total injections in the form of investment, government spending and exports.
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This document provides an overview of key concepts related to foreign exchange rates:
1) It defines foreign exchange rates as the price of one currency expressed in terms of another currency. Rates can be quoted in two ways depending on which country is designated the home country.
2) An appreciation occurs when a currency can buy more of another currency, while a depreciation happens when it can buy less. Changes in bilateral rates are used to calculate changes in effective exchange rates.
3) Exchange rate regimes can be fixed, where a country pegs its currency to another, or floating, where currencies fluctuate freely. Developed countries typically have floating regimes while developing countries have more volatility and sometimes currency crises.
Impact of Exchange Rates on Export Business
Exchange rates impact both macroeconomic and microeconomic levels. At the macro level, currency depreciation can improve a country's trade balance and increase exports, GDP, and employment in exporting industries. At the micro level, exchange rate movements affect exporting firms' revenues, costs, profits and valuation. Empirical analysis of Portuguese export data shows the exchange rate with the UK, US and Angola significantly impact export levels to those countries. Firms can mitigate currency risk through hedging strategies, diversifying markets, and matching cash flows.
Exchange Rates and External Adjustment
Global imbalances have declined since the financial crisis due to changes in demand and output in deficit and surplus countries. Real exchange rates do not fully explain changes in trade balances, as many other macroeconomic, financial, and structural factors are also at play. Assessing real exchange rates and current accounts requires analyzing exchange rate fundamentals in the context of external balances and net foreign asset positions over time. This is a complex task with different considerations for countries like China, the United States, and emerging markets experiencing large capital inflows. A multilateral approach is needed for sustainable global rebalancing.
Exchange Rate Management
The document discusses different types of exchange rate regimes that countries can adopt:
1) Countries can choose between pegging their currency to a fixed exchange rate or allowing it to float freely. Pegging provides stability but limits monetary policy flexibility, while floating provides more flexibility.
2) Within pegging, countries can have different levels of commitment and flexibility - from hard pegs that fix the rate permanently to crawling pegs that adjust the rate gradually. Floating can be pure or managed with periodic interventions.
3) The challenges of maintaining a peg include facing conflicts between domestic goals like growth and employment versus defending the peg. Speculation can also force devaluations under a peg. Overall, pegs work best in stable times but
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Pegging and the trilemma
- Denmark decided to peg its currency, the krone, to the euro at a fixed exchange rate. This means the Danish central bank must set its interest rate equal to the rate set by the ECB, sacrificing monetary policy autonomy in the short and long run.
- Under a fixed exchange rate, a country faces constraints on monetary policy from both the domestic interest rate being determined by UIP and the long-run price level/interest rate being outside of the country's control.
- The monetary policy trilemma states that a country can only achieve two out of three goals: a fixed exchange rate, free capital mobility, and monetary policy autonomy. Denmark's peg means it lost autonomy but gained exchange rate stability and
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The document discusses maintaining a fixed exchange rate through central bank cooperation or noncooperation. With cooperation, central banks lower interest rates to boost output in both countries. Noncooperation sees more aggressive devaluations that improve one country's output at the expense of the other. It also examines how central banks defend exchange rate pegs by adjusting foreign reserves in response to money demand shocks from changes in output or foreign interest rates. Defending the peg involves selling reserves if money demand falls to prevent currency depreciation.
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1) Zimbabwe experienced hyperinflation from 1998-2008, with inflation reaching 66,200% by 2007, the second highest recorded rate in history.
2) The hyperinflation was caused by the central bank excessively printing money and lending it to state-owned enterprises and private entities, effectively hiding the large fiscal deficit.
3) Some groups, like those with connections to state enterprises, benefited from arbitraging the dual exchange rates, but most Zimbabweans suffered from the hyperinflation.
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Inflation refers to a sustained increase in the general price level in an economy. It occurs when aggregate demand exceeds aggregate supply, resulting in excess demand that pulls prices up. Key causes of inflation include increases in money supply, costs of production like wages and materials, and excess demand for goods and services. The inflationary gap model shows inflation occurring when anticipated expenditures exceed available output. Measures to control inflation target monetary and fiscal policies as well as output expansion, wage and price controls.
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The document discusses various exchange rate regimes including hard pegs, soft pegs, crawling pegs, target zones, and managed floats. It notes that with a hard peg, a currency's price is held permanently at a fixed level, while with a soft peg or crawling peg the parity level can be adjusted periodically or have prescheduled changes. Exchange rate policies can also vary in their degree of commitment. Maintaining a currency peg can be difficult when economic conditions change and force adjustments to monetary policy. Speculative attacks can also threaten pegged exchange rates if markets believe a devaluation is likely.
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The document summarizes key concepts from chapter twelve of Mankiw's macroeconomics textbook on aggregate demand in an open economy. It introduces the Mundell-Fleming model and its assumptions. It shows how fiscal and monetary policy impact the economy differently under floating versus fixed exchange rates. Specifically, fiscal policy is powerful under fixed rates but monetary policy is powerful under floating rates. It also examines the effects of changes in the exchange rate, interest rates, money supply, and price levels in the Mundell-Fleming model framework.
Mundell fleming model
The Mundell-Fleming model is an extension of the IS-LM model that accounts for an open economy with international capital flows and exchange rates. It shows how fiscal and monetary policy can affect output and exchange rates under both fixed and flexible exchange rate regimes. Under flexible exchange rates, expansionary domestic policies may be offset by currency appreciation, while under fixed rates they may lead to balance of payments deficits. The model suggests using different combinations of fiscal and monetary policies to achieve objectives like boosting output while maintaining a stable currency value.
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The document discusses the Mundell-Fleming model of the open economy and exchange rate regimes. It provides an overview of the key assumptions and components of the Mundell-Fleming model, including the IS* and LM* curves. It then analyzes the effects of fiscal policy, monetary policy, and trade policy under both floating and fixed exchange rate systems. The document concludes with two case studies on financial crises in Mexico and Southeast Asia that illustrate the model.
Intermediate Macroeconomics Mundell Fleming
The document provides an overview of the Mundell-Fleming model, which analyzes the effects of fiscal and monetary policy in a small open economy with perfect capital mobility. It describes the IS* and LM* curves and how they determine equilibrium income and exchange rates. Key points covered include: fiscal policy cannot affect output, while monetary policy impacts output by changing the exchange rate; floating exchange rates allow monetary policy flexibility; and fixed rates make fiscal policy more effective at changing output.
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This document summarizes a journal article about fighting inflation in Vietnam during its transition to a market economy in the 1990s. The key points are:
1) Vietnam used dollarization and exchange rate management to successfully reduce inflation from over 350% in 1988 to under 10% in the 1990s.
2) A model is developed showing that inflation in Vietnam was driven by excess money supply and exchange rate fluctuations.
3) Empirical analysis estimates that a 25% depreciation of the Vietnamese currency in 1997-1998 led to an additional cumulative inflation of 13% over that period.
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- The document discusses equilibrium national income using a basic Keynesian income model. It examines consumption, investment, government spending, taxes, exports and imports and how they determine equilibrium income.
- Equilibrium occurs where total desired spending equals total production in the economy. In the example, equilibrium income is calculated to be $3,000.
- The model shows that at the level of equilibrium income, total leakages from the economy in the form of saving, imports and taxes must equal total injections in the form of investment, government spending and exports.
Lecture 2 4
This document provides an overview of key concepts related to foreign exchange rates:
1) It defines foreign exchange rates as the price of one currency expressed in terms of another currency. Rates can be quoted in two ways depending on which country is designated the home country.
2) An appreciation occurs when a currency can buy more of another currency, while a depreciation happens when it can buy less. Changes in bilateral rates are used to calculate changes in effective exchange rates.
3) Exchange rate regimes can be fixed, where a country pegs its currency to another, or floating, where currencies fluctuate freely. Developed countries typically have floating regimes while developing countries have more volatility and sometimes currency crises.
Impact of Exchange Rates on Export Business
Exchange rates impact both macroeconomic and microeconomic levels. At the macro level, currency depreciation can improve a country's trade balance and increase exports, GDP, and employment in exporting industries. At the micro level, exchange rate movements affect exporting firms' revenues, costs, profits and valuation. Empirical analysis of Portuguese export data shows the exchange rate with the UK, US and Angola significantly impact export levels to those countries. Firms can mitigate currency risk through hedging strategies, diversifying markets, and matching cash flows.
Exchange Rates and External Adjustment
Global imbalances have declined since the financial crisis due to changes in demand and output in deficit and surplus countries. Real exchange rates do not fully explain changes in trade balances, as many other macroeconomic, financial, and structural factors are also at play. Assessing real exchange rates and current accounts requires analyzing exchange rate fundamentals in the context of external balances and net foreign asset positions over time. This is a complex task with different considerations for countries like China, the United States, and emerging markets experiencing large capital inflows. A multilateral approach is needed for sustainable global rebalancing.
Exchange Rate Management
The document discusses different types of exchange rate regimes that countries can adopt:
1) Countries can choose between pegging their currency to a fixed exchange rate or allowing it to float freely. Pegging provides stability but limits monetary policy flexibility, while floating provides more flexibility.
2) Within pegging, countries can have different levels of commitment and flexibility - from hard pegs that fix the rate permanently to crawling pegs that adjust the rate gradually. Floating can be pure or managed with periodic interventions.
3) The challenges of maintaining a peg include facing conflicts between domestic goals like growth and employment versus defending the peg. Speculation can also force devaluations under a peg. Overall, pegs work best in stable times but
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The document summarizes key aspects of Keynes' monetary theory and the Keynesian model. It introduces liquidity preference theory, explaining the speculative, precautionary, and transactions motives for holding money. It discusses the money market equilibrium where money supply equals money demand. The IS-LM model is explained as interpreting Keynes' theory, with the LM curve sloping upward and the IS curve downward, intersecting to determine equilibrium income and interest rates. Money is integrated into the real economy through its effect on investment and interest rates.
Pegging and the trilemma
- Denmark decided to peg its currency, the krone, to the euro at a fixed exchange rate. This means the Danish central bank must set its interest rate equal to the rate set by the ECB, sacrificing monetary policy autonomy in the short and long run.
- Under a fixed exchange rate, a country faces constraints on monetary policy from both the domestic interest rate being determined by UIP and the long-run price level/interest rate being outside of the country's control.
- The monetary policy trilemma states that a country can only achieve two out of three goals: a fixed exchange rate, free capital mobility, and monetary policy autonomy. Denmark's peg means it lost autonomy but gained exchange rate stability and
European monetary policy, fiscal policy and the global financial crisis
This document provides an overview of a lecture on European monetary policy, fiscal policy, and the global financial crisis. It discusses the monetary unification of the EU, fiscal coordination in the eurozone, the Stability and Growth Pact, EMU performance 1999-2012, and strains within the eurozone. It also covers the objectives, instruments, and strategy of the European Central Bank, fiscal policy externalities, and the Stability and Growth Pact.
Pegs
The document discusses maintaining a fixed exchange rate through central bank cooperation or noncooperation. With cooperation, central banks lower interest rates to boost output in both countries. Noncooperation sees more aggressive devaluations that improve one country's output at the expense of the other. It also examines how central banks defend exchange rate pegs by adjusting foreign reserves in response to money demand shocks from changes in output or foreign interest rates. Defending the peg involves selling reserves if money demand falls to prevent currency depreciation.
Cfo briefcasting23mar2013
The document provides a market overview and analysis of currency, equity, interest rates, and economic indicators from the US and Europe. It notes that the US Fed kept interest rates unchanged, while two out of three US economic reports were better than expected. However, the real estate sector continues to underperform. The Euro fell sharply against the dollar and pressure is building on the Indian Rupee. Indian equity markets may see some buying after declining slightly the previous day. German bond yields decreased while US yields remained stable.
Balance of payments& Exchange Rates
A presentation giving general info on Balance of payments and various theories about exchange rates.
Froyen10
The document provides an overview of monetarism and Milton Friedman's restatement of the quantity theory of money. It discusses four key aspects of monetarism: (1) that fluctuations in the money supply are the dominant cause of fluctuations in real output; (2) monetarism's use of an expectations-augmented Phillips curve; (3) a monetary approach to exchange rates; and (4) support for monetary policy rules over discretionary policies. It also summarizes Friedman's restatement of the quantity theory and three arguments for adopting a rule-based monetary policy of steady money supply growth.
Zimbabwe monetary policy
1) Zimbabwe experienced hyperinflation from 1998-2008, with inflation reaching 66,200% by 2007, the second highest recorded rate in history.
2) The hyperinflation was caused by the central bank excessively printing money and lending it to state-owned enterprises and private entities, effectively hiding the large fiscal deficit.
3) Some groups, like those with connections to state enterprises, benefited from arbitraging the dual exchange rates, but most Zimbabweans suffered from the hyperinflation.
Inflation and stagflation
Inflation refers to a sustained increase in the general price level in an economy. It occurs when aggregate demand exceeds aggregate supply, resulting in excess demand that pulls prices up. Key causes of inflation include increases in money supply, costs of production like wages and materials, and excess demand for goods and services. The inflationary gap model shows inflation occurring when anticipated expenditures exceed available output. Measures to control inflation target monetary and fiscal policies as well as output expansion, wage and price controls.
The turbulent adolescence of the euro and its path tomaturity by Gonzalo Garc...
The turbulent adolescence of the euro and its path tomaturity by Gonzalo Garc...Círculo de Empresarios
This document provides an analysis of the eurozone sovereign debt crisis. It discusses how Greece's fiscal problems in 2009 exposed weaknesses in eurozone markets. The Greek crisis then spread contagion throughout the eurozone, fragmenting the single monetary policy. Key points are that the crisis became systemic for the entire eurozone, was specific to eurozone members, and took on autonomous financial dynamics not defined by economic fundamentals. The crisis revealed fragility in domestic debt markets and political tensions around financial assistance.What's hot (20)
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1. The document discusses the IS-LM model and how it can be used to analyze the effects of fiscal and monetary policy. It presents the IS and LM curves and how they represent equilibrium in the goods and money markets.
2. Fiscal policy like increases in government spending can shift the IS curve right, raising output and interest rates. Monetary policy like increases in the money supply can shift the LM curve down, lowering interest rates and raising output.
3. Shocks to aggregate demand are analyzed using the IS-LM model, and the model can also show the transition from short-run to long-run equilibrium when prices adjust over time.
financial markets
The document discusses the history and evolution of international monetary systems from bimetallism to the present day. It covers major historical systems like the gold standard and Bretton Woods system. It also explains key concepts in international finance like exchange rate theories, foreign exchange markets, and currency quotations. Major developments covered include the establishment of the Euro and current mixed exchange rate arrangements used globally.
Open Economy Mankiw tutorial.ppt
The document provides an overview of the Mundell-Fleming model, which examines how fiscal and monetary policy impact output and exchange rates under different exchange rate regimes. Key points:
1) Under floating exchange rates, fiscal policy has no effect on output while monetary policy is powerful. Under fixed rates, the reverse is true - fiscal policy is powerful while monetary policy has no effect.
2) A country cannot have free capital mobility, an independent monetary policy, and a fixed exchange rate at the same time. It must choose two of the three.
3) Expectations about exchange rate changes can become self-fulfilling prophecies that impact interest rates and currency values in the present. Increased risk perceptions push up
Quantity theory of money
This document provides an overview of the quantity theory of money and the monetary approach to exchange rates.
It defines key concepts like absolute and relative PPP. It then presents a simple model showing how money supply, income, and price levels are related in determining equilibrium exchange rates. Higher money growth leads to currency depreciation, while higher income growth appreciates a currency.
The document uses examples to illustrate how the model can be applied to forecast exchange rate movements in response to changes in policy like money supply increases. It concludes by reviewing some empirical evidence supporting the monetary approach.
IBE303 Lecture 8
This document provides an overview of international financial markets and linkages, including:
- The Eurodollar market, which began in the 1950s and increased in importance due to factors like oil shocks in the 1970s.
- International bond and stock markets, which have facilitated greater international capital mobility and interdependence as well as spread of financial crises.
- Basic models of international financial linkages based on interest rate parity and how a change in domestic interest rates would impact markets.
- Derivatives markets that have emerged to hedge foreign exchange and interest rate risk, though cannot eliminate risk as shown by the global financial crisis.
Foreign Exposure and Risk Management
The foreign exchange market determines currency values through supply and demand. Companies face exchange rate risk from transactions, translations, and economic exposures. Hedging strategies like forwards, futures, options, and swaps help reduce this risk. Forwards lock in future exchange rates while futures offer liquidity through exchanges. Options provide downside protection and flexibility. Swaps involve exchanging interest payments in different currencies. Taking on foreign debt can also hedge exposure by exploiting interest rate relationships.
Effect of Euro on Income_Econometric Paper
The document analyzes the economic impact of adopting the euro as a common currency on average income levels. Using panel data from 16 European countries from 1985-2005, the study finds that adopting the euro has had a statistically significant negative effect on average income. Specifically, the analysis shows that average income was $635 lower per year for countries that adopted the euro. Additionally, the negative impact was largest one year after adoption, with income $743-$1,006 lower. The study also finds the negative effect was greater for highly urbanized eurozone countries, possibly due to increased dependence on exporting outside the eurozone.
Ch01
This document provides an overview and outline of key topics in international economics. It introduces international economics as the study of economic interactions between independent nations, noting the increased importance of global trade and financial flows. The main sections are on what international economics encompasses, including the gains from trade, patterns of trade, levels of trade, and international policy issues. International economics has both a trade component focusing on real transactions of goods/resources, and a monetary component concerning financial transactions and exchange rates.
Imf working paper
This document discusses a study that uses an event study methodology to investigate how macroeconomic announcements affect commodity prices, with a focus on whether gold behaves differently than other commodities. The study finds that gold prices react to specific US and Eurozone macro announcements related to economic activity and interest rates in a manner consistent with gold's role as a safe haven asset. In contrast, other commodity prices exhibit more procyclical reactions to announcements and have become more sensitive as commodities have become increasingly financialized. These results are useful for traders and long-term market participants.
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? ...
Sovereign credit risk, liquidity, and the ecb intervention: deus ex machina? - Loriana Pelizzon, Marti Subrahmanyam, Davide Tomio, Jun Uno. June, 5 2014. First International Conference on Sovereign Bond Markets.
Macroeconomics chapter 13
1) The Mundell-Fleming model examines the effects of fiscal and monetary policy in open economies under different exchange rate regimes.
2) Under floating exchange rates, fiscal policy has no effect on output as currency appreciation offsets demand changes, while monetary policy is powerful by changing the exchange rate.
3) Under fixed exchange rates, fiscal policy can boost output as the exchange rate is held constant, but monetary policy has no effect as the money supply adjusts to maintain the fixed rate.
Money money
1. The document discusses several key concepts related to money including its functions as a medium of exchange, unit of account, and store of value. It also discusses different monetary aggregates like M1, M2, and M3.
2. The quantity theory of money posits that the overall price level in an economy is determined by the supply of money, and that increasing the money supply will cause proportionate increases in the price level over the long run.
3. When the central bank increases the money supply, it can lead to inflation as prices rise in response to bring money supply and demand into equilibrium.
Euro Vs Dollar
The document discusses whether the euro will emerge as an international currency to challenge the dominance of the US dollar. It argues that the euro has the potential to share the number one currency position with the dollar due to the large size of the eurozone economy and ongoing integration of European financial markets. Deeper and more liquid European securities markets could make euro assets more attractive internationally and expand the use of the euro in trade. This would provide economic benefits for the eurozone similar to the seigniorage gains the US currently enjoys from the dollar's status. Policymakers should focus on further integrating European capital markets to promote the international role of the euro.
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Modelo Mundell-Fleming (2)
- 1. The Mundell-Fleming Model Mainstream Thinking on Open Macroeconomics
- 2. Thomas Dürmeier Exchange Rates Regulating Global Finance E nominal exchange rate between the euro and the dollar (eg. 1,17 euro/$ = 0,85 $/euro) ε real exchange rate (epsilon) measured in purchasing power our pespective: from USA to EU E = number of units of domestic currency you can get for one unit of foreign currgency example: E USD/EUR = 1,19 $/Euro domestic foreign
- 3. Thomas Dürmeier Exchange Rate 2 Regulating Global Finance example: E USD/EUR = 1,19 $/Euro depreciation E ε (value of currency decreases) appreciation E ε (value of currency increases) Real exchange rate: exchange between commodities one Volkswagen P* vs. one Cadillac P 1. Volkswagen with US-price: P* x E 2. In comparison to Cadillac: (P* x E)/P = ε
- 4. Thomas Dürmeier Investement/Savings - Liquidity/Money: IS-LM Regulating Global Finance IS: Y = C(Y-T) + I (Y,i) + G LM: M/P = Y L(i) LM IS T , G M i Y social product nominal interest rate - only commodity and captial market - price level is constant - Keynesian bias - short-run
- 5. Thomas Dürmeier Aggregated Supply and Demand: AS-AD Regulating Global Finance AD: Y t = Y(M/P t , G, T) AS: P t = P t-1 (1+μ) F(1-(Y t /L), z) AS μ , L , z M , T , G P Y social product price level AD In the long-run: only AS determines Y - IS-LM plus labor market - neutrality of money - monetaristic bias - long-run
- 6. Thomas Dürmeier AS-AD: Neutrality of Money Regulating Global Finance AD: Y t = Y(M/P t , G, T) AS: P t = P t-1 (1+μ) F(1-(Y t /L), z) AS M , T , G P Y social product price level AD In the long-run: only AS determines Y Monetary policy has NO influence on output, only inflation. Only under certain circumstances.
- 10. Thomas Dürmeier Mundell-Fleming Modell Regulating Global Finance IS: Y = C(Y-T) + I (Y,i) + G LM: M/P = Y L(i) LM IS i Y social product nominal interest rate E=E e /(1+i-i*) interest rate parity i E Exchange rate E
- 11. Thomas Dürmeier Mundell-Fleming Modell: flexible exchange rate and fiscal policy Regulating Global Finance IS: Y = C(Y-T) + I (Y,i) + G LM: M/P = Y L(i) LM IS G i Y social product nominal interest rate E=E e /(1+i-i*) interest rate parity i E Exchange rate E appreciation
- 12. Thomas Dürmeier Fixed exchange rate and fiscal policy Regulating Global Finance IS: Y = C(Y-T) + I (Y,i) + G LM: M/P = Y L(i) LM IS G i Y social product nominal interest rate E=E e /(1+i-i*) interest rate parity i E Exchange rate E IS‘ LM‘‘ Pressure on exchange rate