Disc 11-16-09

Disc 11-16-09 - Speculators bet on devaluation CB runs down...

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Chapter 18 Mishkin | - ---------------------| - ----------------------| Fixed Managed/Dirty Float Full Float ---------------------------Restrictiveness Increasing Foreign exchange crisis in UK or Germany 1992 Foreign Exchange Crisis o EMS (European Monetary System) o Germany raises interest rates 3-5% o Demand for Deutchmarks increased relative to pounds so provided pressure for DM to appreciate o In order to defend the fixed exchange rate, Bank of England had to abandon peg and devalue their currency Devalue means… Economic/political concerns *International investors sell and moved their assets central bank forced to defend fixed exchange rate
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Unformatted text preview: Speculators bet on devaluation CB runs down its reserves; forced to devalue o All of these occur with some kind of fixed XR regime o Happened in Mexico and East Asian countries Capital Controls o Restrictions placed on foreign and domestic investors designed to obstruct their ability to purchase domestic assets or sell off domestic assets Controlling Outflows o Problems: Less attractive for investors Lends itself to government corruption Seen as a sign of weakness Controlling Inflows o Problems: Same as above Decreased growth Should CB target Exchange Rates? o...
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This note was uploaded on 02/03/2011 for the course ECON 303 taught by Professor Boedo during the Fall '08 term at UVA.

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Disc 11-16-09 - Speculators bet on devaluation CB runs down...

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