M. Altar Finante Internationale.ppt

8/14/2019 M. Altar Finante Internationale.ppt

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I NTERNATI ONAL F I NANCE

Prof.uni v.dr . M oisa AL TAR

D0FI N, 08. Oct. 2013


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1. Some L es s o n s o f E u r o C r i s is

F inance and financial markets were at the heart of theglobal economi c cr isis that began in August 2007.

F inancil fr agil ity.

M irroring mainstr eam macroeconomic theory,most ofthe attention focused on monetary policy, fiscal policy,and structural reform in nonfinancial markets(especially labor markets). Commentary on EMUsperformance dur ing i ts f i rst decade generall y paid muchless attention to f inancial factors than now seemswarranted


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Policy tr i lemma (M aur ice Obstfeld)

One cannot simultaneously maintain all three of (1) cross-border financial integration, (2) financial stability, and (3)national fiscal independence.

EMU@10 went on to suggest a broadening of the EUssurveillance system for the euro area to include financialvariables such as bank credit and asset prices (p. 260).

But the report gave little hint of the far-reachingimplications (fiscal and otherwise) of adequatelyaddressing financial-market vulnerabilities, nor of thepotential costs of failing to do so.


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The Original EM U Archi tecture: F ocus on

M onetary and F iscal Polices

The design of the M aastr icht safeguards aimed toachieve two main objectives:

price stability

solvency of national public sectors without externalbailouts or i nf lation-drivendevaluation of publi c debts.

The Eur opean System of Central Banks and of the ECB,the Excessive Deficits Procedur e (as implementedthrough the Stabil i ty and Growth Pact), and the

Maastricht treatys no -bailout clause .


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References cap.1

1. Ostfeld, M (2013) : F inance at Center Stage: SomeL essons of the Eur o Crisis , EU, Economic Papers 4932 . Eur opean Commission (Directorate-General f orEconomic and F inancial Affair s), EM U@10: Successesand Chal lenges after 10 Years of Economic and M onetaryUni on. Brussels: European Commission, 2008

3.Reinhard, C.,Rogoff, K (2011) : A decade of debt,NBER, W.P.16827

3.Reinhard, C., Rogoff


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Evolution of the I nternational M onetary System


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Bimetallism: Before 1875Classical Gold Standard: 1875-1914Interwar Period: 1915-1944

Bretton Woods System: 1945-1972The Flexible Exchange Rate Regime: 1973-Present


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Bimetallism

A double standard in the sense that both gold and silverwere used as money.Some countries were on the gold standard, some on thesilver standard, some on both.Both gold and silver were used as international means of

payment and the exchange rates among currencies weredetermined by either their gold or silver contents.Greshams Law implied that it would be the least valuablemetal that would tend to circulate


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Classical Gold Standard: 1875-1914

During this period in most major countries: Goldalone was assured of unrestricted coinageThere was two-way convertibility between gold andnational currencies at a stable ratio.Gold could be freely exported or imported.

The exchange rate between two countryscurrencies would be determined by their relativegold contents.


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Highly stable exchange rates under the classical goldstandard provided an environment that was conducive tointernational trade and investment.

Misalignment of exchange rates and internationalimbalances of payment were automatically corrected bythe price-specie-flow mechanism


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I nterwar Per iod :1914-1944

Exchange rates fluctuated as countries widely usedpredatory depreciations of their currencies as a means ofgaining advantage in the world export market.

Attempts were made to restore the gold standard, but participants lacked the political will to follow the rules ofthe game.

The result for international trade and investment was profoundly detrimental


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Bretton Woods System: 1944-1972

Under the Bretton Woods system, the U.S. dollar was pegged to gold at $35 per ounce and other currencies were pegged to the U.S. dollar.Each country was responsible for maintaining itsexchange rate within 1% of the adopted par value by

buying or selling foreign reserves as necessary.The Bretton Woods system was a dollar-based goldexchange standard


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3. Basic concepts and the smal l open economy

Preferences


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present value price,


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Define the permanent level of output y asthe number that solves

the current account balance is given by


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More generally, once we have solved forconsumption c t, we can use the flow

constraints andthe initial condition B0 to solve for the stockof bonds at any date t

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M. Altar Finante Internationale.ppt

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