POLS 1301 Lecture Notes - Lecture 13: Currency Crisis
31 Oct 2017
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Pegged (fixed: replacing on currency with another. Why do currency values drop: national interest rates are lowered, current accounts decrease spending more on foreign goods, prices of major exports drop. Floating exchange rates allow for flexibility to engage in counter-cyclical measures. Fixed or pegged exchange rates international traders favor this because they want long-term stability. How would a drop in the dollar affect standard of living: when a currency crisis occurs exchange rate commitments are not credible. Trilemma: the u. s. and the e. u. have financial market openness, the e. u. and china have exchange rate stability, china and the u. s. have monetary policy independence.
