ps7 - DEPARTMENT OF ECONOMICS UNIVERSITY OF CALIFORNIA,...

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Unformatted text preview: DEPARTMENT OF ECONOMICS UNIVERSITY OF CALIFORNIA, BERKELEY FALL 2009 ECON 182 Problem Set 7 Due in class on Thursday, October 29 at the beginning of lecture . Students that show their work and write neatly will be graded favorably. Please write your full name , GSI, and section time on your problem set. 1 Current account sustainability Turkeys foreign debt to GDP is approaching 40%. Most of it is sovereign debt (i.e. it repre- sents government liabilities to foreign investors). Nominal interest rates on this debt equal 10%. Expected and actual inflation in Turkey are around 8%, while real output growth is predicted to be-2% in 2009. (a) Calculate the maximum current account surplus/deficit (as a percentage of GDP) that Turkey needs in order to stabilize the debt/GDP ratio at its current level. (b) Calculate the associated trade surplus/deficit that Turkey needs (Assume that net factor pay- ments equal to i $ B t where i denotes the nominal interest rate on Turkeys nominal external debt $ B t ). (c) Turkeys current account deficit is projected at 3.6% of GDP for 2009. Calculate the level at which the ratio of external debt-to-GDP will settle if the current account deficit remains at this level while the growth rate of GDP, the inflation rate and the nominal interest rate on Turkish debt remain unchanged. In your view, is the situation under control? 2 The balance sheet of Chinas central bank The Peoples Bank of China (the PBOC henceforth) is the name of Chinas central bank, not to be confused with the Bank of China, which is a main commercial bank in China. The PBOCs balance sheet as of June 2009 is as follows (in trillion yuans): The PBOCs balance sheet 2002 2009 2002 2009 Assets 4.5 21.6 Liabilities 4.5 21.6 Foreign assets 1.9 17.2 Monetary base 4.1 12.6 Foreign exchange 1.8 15.9 Currency in circulation 1.7 3.4 Gold and other foreign assets .1 1.3 Bank deposits 2.4 9.2 Government deposits...
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ps7 - DEPARTMENT OF ECONOMICS UNIVERSITY OF CALIFORNIA,...

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