November 18 class notes

November 18 class notes - government savings, and revalue...

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November 18, 2010 GVPT 451 What is the IMF doing wrong? I. Quick Recap a. The IMF is supposed to provide loans to countries who have no other options b. The ones supposed to get aid are supposed to have structural current account deficit problems i. This is problematic because when you keep building up deficits, then other people won’t loan you money because you can’t pay back ii. Current account problems are also problematic because if you can’t find a way to get more exports then countries have a hard time keep their currency at the proper level 1. Then the IMF has to come in to defend the value of your currency II. More on non-random assignment a. The countries that get IMF loans are fundamentally different from the ones that get IMF loans i. All things aren’t actually equal III. Credibility problems IV.Are the conditions the right ones? a. Assuming that the conditions are to privatize, liberalize, reduce
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Unformatted text preview: government savings, and revalue foreign exchange b. Graph of a perfectly free trade regime i. We have more consumers now that have the goods that they want and at a cheaper rate c. If you want long term growth in a democratic regime, you need more capital and more innovation d. If every country gets one vote, you could still get together a bunch of countries that get people to make similar changes e. Moral hazard problem o Countries are going to get money anyway o So countries keep giving money regardless of actions/behaviors If the US lets other countries collapse, then the US economy will be affected o So, the US cant commit or let others fail o This offers no incentive for the US to change their behaviors You have to take a gamble and lend it to those that can change policies and hope they sustain it o You cant lend to people who cant change policies...
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