POLSCI 2J03 Lecture Notes - Lecture 12: Global Financial System, United States Dollar, Big Bang
Document Summary
Background of financial crisis caused by deregulation of finance. 1970"s-80s marked by removal of regulations in the financial industry. Elimination of capital controls in uk and us in the 70s. Attempt to neoliberalism the system; deregulation between sectors were; sectors were insulated for each other previously so crises don"t spillover into other sectors. Shows the danger of simultaneously pursuing three policy objective in a global financial system. Mundell and fleming-- trade offs in the financial system. If you try to pursue policies simultaneously it will not succeed. 3 policy objectives: monetary autonomy: monetary policy that serves the interest of your national economy. Set interest rates to increase rate of economy or slow it down. As interest rates go up, borrowing becomes more expensive interest rates should respond to domestic economy. If the economy is running too fast, you scan slow the economy by raising interest rates: stable exchange rates.