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INTERNATIONAL ECONOMICS (8.1 EXCHANGE RATE REGIME CHOICE (ECONOMIC…
INTERNATIONAL ECONOMICS
8.1 EXCHANGE RATE REGIME CHOICE
ECONOMIC INTEGRATION: GROWTH OF MARKET LINKAGES IN GOODS, CAPITAL, AND LABOR MARKETS AMONG REGIONS AND COUNTRIES
GREATER DEGREE OF ECONOMIC INTEGRATION- THE GREATER WILL BE THE VOLUME OF TRANSACTIONS.. GREATER WILL BE BENEFITS
ASYMMETRIC SHOCK: LEADS TO CONFLICT BETWEEN THE POLICY GOALS OF TWO COUNTRIES
SYMMETRIC SHOCKS: CHANGES THAT DO NOT CONFLICT WITH FIXED EXCHANGE RATE COMMITMENT
AS INTEGRATION RISES, THE EFFICIENCY OF BENEFITS OF A FIXED EXCHANGE RATE INCREASE
AS SYMMETRY RISES: STABILITY COSTS OF A FIXED EXCHANGE RATE DECREASE
8.2 OTHER BENEFITS OF FIXING
FLOATING EXCHANGE RATES LESS USEFUL AS STABLIZATION TOOL FOR COUNTRIES THAT CANNOT BORROW IN THEIR OWN CURRENCY
FEAR OF FLOATING
8.3 FIXED EXCHANGE RATE SYSTEM
RESERVE CURRENCY SYSTEM- NTH COUNTRY IS CENTER COUNTRY PROVIDING RESERVE CURRENCY FOR ALL OTHERS
COOPERATIVE ARRANGEMENTS: EX. BASED ON MUTUAL AGREEMENT AND COMPROMISE BETWEEN CENTER AND NONCENTER COUNTRIES
IF NONCOOPERATIVE: BEGGAR THY NEIGHBOR THEORY: HOME CAN IMPROVE ITS POSITION AT THE EXPENSE OF FOREIGN AND WITHOUT FOREIGN'S AGREEMENT
8.4 INTERNATIONAL MONETARY EXPERIENCE
FIRST ERA OF GLOBALIZATION: 1870- 1914 : PEGGED TO GOLD
REACTION TO BRETTON WOODS SYSTEM
MOST ADVANCED COUNTRIES HAVE OPTED TO FLOAT AND PRESERVE MONETARY POLICY AUTONOMY
GROUP OF EUROPEAN COUNTRIES INSTEAD DECIDED TO TRY TO PRESERVE A FIXED EXCHANGE RATE SYSTEM AMOUNG THEMSEVLES
SOME DEVELOPING HAVE MAINTAINED CAPITAL CONTROLS BUT MAY HAVE OPENED THEIR CAPITAL MARKETS
SOME HAVE CAMPED IN THE MIDDLE GROUND: ATTEMPTED TO MAINTAIN INTERMEDIATE REGIMES
SOME COUNTRIES STILL IMPOSE CAPITAL CONTROLS RATHER THAN EMBRACE GLOBALIZATON