Lecture_12_complete_version

Lecture_12_complete_version - 1 Lecture 12 The Open Economy...

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Unformatted text preview: 1 Lecture 12 The Open Economy: Exchange Rates (cont.) & The BOP 2 Fixed Exchange Rates • Last week: monetary policy more effective in an open economy with a flexible exchange rate. • When exchange rates are fixed , monetary policy less effective as a stabilisation tool. • Fixed exchange rates determined by government, not the market. – Fixed to what? Gold, another currency … – Devaluation vs revaluation 3 The Forex Market: Fixed Ex. Rates e Q of $A D S e* Q* Official value Excess supply Forex reserves run down e F BoP Deficit 4 Speculative Attacks e Q of $A D S Official value e F S’ EMS vs EU vs AFC vs Brazil 5 Speculative Attacks (cont.) 6 AFC Output Growth in East Asian Countries 1970-1998 1970-1996 1997 1998 Indonesia 6.8 4.7-15.5 Malaysia 7.4 7.8-4.7 Korea 8.4 5.5-6.5 Thailand 7.5-0.4-7.0 Growth rate: annual rate of growth of GDP (in percent). Source: OECD Economic Outlook , December 1998. Output Growth in East Asian Countries 1970-1998 1970-1996 1997 1998 Indonesia 6.8 4.7-15.5 Malaysia 7.4 7.8-4.7 Korea 8.4 5.5-6.5 Thailand 7.5-0.4-7.0 Output Growth in East Asian Countries 1970-1998 1970-1996 1997 1998 Indonesia 6.8 4.7-15.5 Malaysia 7.4 7.8-4.7 Korea 8.4 5.5-6.5 Thailand 7.5-0.4-7.0 Output Growth in East Asian Countries 1970-1998 1970-1996 1997 1998 Indonesia 6.8 4.7-15.5 Malaysia 7.4 7.8-4.7 Korea 8.4 5.5-6.5 Thailand 7.5-0.4-7.0 Growth rate: annual rate of growth of GDP (in percent). Source: OECD Economic Outlook , December 1998. 7 AFC (cont.) Source: Bernanke et al. (2008) 8 Role of the IMF • When the IMF bails out a country that is under attack, it usually poses as a condition that the...
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Lecture_12_complete_version - 1 Lecture 12 The Open Economy...

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