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GLOBAL ECONOMICS (9.2 THE MECHANICS OF A FIXED EXCHANGE RATE (DOMESTIC…
GLOBAL ECONOMICS
9.2 THE MECHANICS OF A FIXED EXCHANGE RATE
DOMESTIC CREDIT: CENTRAL BANK'S PURCHASES : BANK'S DOMESTIC ASSETS
INTEREST RATE SPREAD: DIFFERENCE BETWEEN HOME AND FOREIGN INTEREST RATES- TOTAL SUM
CURRENCY PREMIUM: EXCHANGE RATE RISK PREMIUM
COUNTRY PREMIUM: DEFAULT RISK PREMIUM
RESERVES: QUANTITY R DOLLARS OF FOREIGN EXCHANGE RESERVES PURCHASED
STERILIZATION: SALE AND PURCHASE ACTIONS BY THE CENTRAL BANK OFFSET EACH OTHER EXACTLY
ASSETS: DOMESTIC DEBT AND FOREIGN RESERVES
LIABILITIES: MONEY SUPPLY ISSUED BY THE CENTRAL BANK
9.3 HOW PEGS BREAK
FISCAL DOMINANCE: MONETARY AUTHORITIES HAVE NO INDEPENDENCE
SPECULATIVE ATTACK: WHEN INVESTORS SELL ALL THEIR HOLDINGS IN A PARTICULAR CURRENCY
9.1 FACTS ABOUT EXCHANGE RATE CRISES
EXCHANGE RATE CRISIS: BIG DEPRECIATION OCCURING AFTER A PEG BREAKS
BANKING CRISIS: IF BANKS AND OTHER FINANCIAL INSTITUTIONS FACE ADVERSE SHOCKS- DECLARE BANKRUPTCY
DEFAULT CRISIS: IF GOVERNMENT FACES ADVERSE SHOCKS : SOVERIGN DEBT CRISIS
9.4 CONTINGENT MONETARY POLICIES
CONTINGENT COMMITMENT: IF THINGS GET BAD ENOUGH THE GOVERNMENT WILL LET THE EXCHANGE RATE FLOAT RATHER THAN PUT COUNTRY IN ECONOMIC PAIN
MULTIPLE EQUILIBRIA: DEVELOP ECONOMIC MODEL WITH SELF FULFILLING EXPECTATIONS: MAY NOT ALWAYS FIND SINGLE EQUILIBIRUM
SELF CONFIRMING EQUILIBRIUM: COMBINATIONS OF INVESTOR BELIEFS AND GOV ACTIONS FOR WHICH THE EX POST OUTCOME VALIDATES EX ANTE BELIEFS
