Economics 2150A/B Study Guide - Quiz Guide: Demand Shock, Decision Rule, Optimum Currency Area

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Colin Denniston

Document Summary

European monetary system was originally a system of fixed exchange rates implemented in 1979. The ems transformed into the european monetary union (emu). Membership of emu implies exchange rate fixed within specific bands restrained fiscal and monetary policies euro replaces domestic currency. Greater market integration (economic growth) due to common currency. German influence moderated under european system of central banks (escb). No devaluations/revaluations, capital flights, and speculation with common currency. Exchange rate mechanism (erm): currencies allowed to fluctuate 2. 25% around target exchange rates. Exceptions: portugal, spain, britain, and italy, whose currencies were allowed to fluctuate 6% around target exchange rates. Credit system to help out countries that need assets and currencies to intervene in foreign exchange market. Due to strict german fiscal and monetary policies, there were some problems with the. British pound, so great britain had to leave the ems. The erm was redefined at a margin of 15%.