mon_econ_week12 - The University of Sydney Faculty of...

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The University of Sydney Faculty of Economics and Business MONETARY ECONOMICS {6 credit points} ECOS3010 Tony Aspromourgos WEEK XII KEY POINTS 12.1 from a ‘closed’ monetary system (single currency area), to a closed global system, with interacting, multiple currency areas 12.2 independent national monetary policies? 12.3 regional adjustment in a single currency area 12.4 optimal currency areas & optimal exchange-rate regimes 12.5 theory of exchange rates & the experience of floating rates READING: There is no reading for this week, so particular attention should be paid to the lectures . The essential purpose of these lectures is to deal briefly with ‘open economy’ issues in relation to monetary economics – because it would be inappropriate to entirely ignore them in such a course as this; but on the other hand, there is a separate unit of study which deals with them. 12.1 from a ‘closed’ monetary system (single currency area), to a closed global system, with interacting, multiple currency areas The first of two key points here is to emphasize that ‘open economy monetary economics’, considering a single but open economy, is not more general than ‘closed economy’ monetary economics: the genuine progression to greater generality is to move from consideration of a closed system using a single currency, to an also closed system – but of multiple currency areas which interact with each other (interact most obviously, via foreign exchange markets, as well as flows of goods, services, finance and labour, between currency areas). The other key difference is that there then are at least as many legal jurisdictions as there are currency areas (there may be more legal jurisdictions than currency areas, due to federal governmental structures) – and these may influence (in particular, impede) economic interactions between currency areas. Restrictions on labour flows will perhaps be the last and the irremovable limitation to globally integrated capitalism, even in an era of ‘globalization’, if control of population movements is essential to the viability of the nation State. The second key point is to refer back to the definition of money in week 1. There, I told that money’s key defining characteristic is as means of payment; ‘liquidity’ is a matter of degree (how widely acceptable is an asset as means of payment in markets?). Then, one can now ask: ‘what is international money?’ That is to say, what is the most widely acceptable means of payment in the global economy? The short answer is the US dollar, due to the special position of the US in the world economy – in turn, a result of its economic, military and political power. 12.2 independent national monetary policies?
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mon_econ_week12 - The University of Sydney Faculty of...

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