EC249 Lecture Notes - Lecture 4: Currency Board, Plaza Accord, Money Supply
Document Summary
Under the gold standard: exchange rates are fixed based on the price of gold. Exchange rates are determined by each currency"s price of gold. Outflows lead to deflation contraction of the money supply. Free flows of gold always under the gold standard. Devaluating your nation"s currency on purpose to create a competitive advantage in the exports market. Many examples where countries have had depression-style decreases in output. After the dissolution of the ussr, many of the country-states experienced larger than depression declines by moving away planned economies. Loss of domestic monetary policy to address domestic shocks. All adjustments in the real exchange rates must come from domestic prices. Amount of currency flow would be restricted: 1915-1944. Downward spiral, little role from the government. Government learned that their role is to increase spending on consumption to have an increase on i spending and employment. X= f(fx, y*)= function of exchange rates and foreign output.
