ECON 336 Chapter Notes -Fullsteam Records, Foreign Exchange Market, Ronald Mckinnon

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copperalpaca520

19 May 2012

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Scandinavian model of wage adjustment= when currencies are pegged to a higher currency their productivity growth will soar. (examples, scandinavian countries in the postwar era as well as japan in the same era). The key is to ensure that monetary and exchange rate conditions are right so that high wage growth accurately reflects productivity gains. China"s fixed exchange rate coupled with more openness ended the roller coaster ride in. Fixing the nominal exchange rate also helped increase chinese gdp after 1996 since it provided a much more needed nominal anchor when very rapid financial transformation made purely domestic monetary control mechanisms difficult to implement. However, in order to preserve this anchor, manufacturing wages had to increase and they did. This has left companies betting on what the future wage rate will be (if it will continue to increase or not).

Related Questions

We define real exchange rate as the relative price of domestic goods to foreign goods in domestic currency and we define nominal exchange rate as the amount of domestic currency necessary to exchange for 1 unit of forein currency. When real exchange rate increases without changing domestic and foreign prices, how does nominal exchange rate change?

salmongoose289

Which of the following most accurately describe the operation of the Bretton Woods system of adjustable pegged exchange rates? Check all that apply.

Countries can always reach their domestic stabilization objectives by devaluing their currencies.

A semi-fixed exchange rate system ties currencies to each other to provide stable exchange rates for commercial and financial transactions.

Countries can devalue or revalue its currency so as to restore payments balance.

Adjustable pegged rates enable estimates of the equilibrium rate to which a currency should be re-pegged.

Why do nations use a crawling peg exchange rate system?

To make small but frequent exchange rate adjustments promoting payments balance

To enable short-term volatility and longer-term swings in exchange rates that overshoot values justified by fundamental conditions

To make significant exchange rate adjustments promoting payments balance

To implement par value changes in a small number of large steps

Use the following categorization table to indicate the case for and the case against a system of floating exchange rates.

	For or	Against
It enables continuous adjustments of payments balances.
It reduces the need for international reserves.
It leads to disorderly exchange markets.
It may be inflationary.

byzantiumwolf933

When a country's real exchange rate appreciates:

a. Its nominal exchange must have also appreciated.

b. Foreign goods become more expensive in terms of domestic purchasing power.

c. It could result if the domestic exchange rate is pegged in terms of the foreign exchange rate and foreign inflation rates are relatively high compared to domestic inflation rates.

d. It could result if the domestic exchange rate is pegged in terms of the foreign exchange rate and domestic inflation rates are relatively high compared to foreign inflation rates.

goldfly864

ECON 336 Chapter Notes -Fullsteam Records, Foreign Exchange Market, Ronald Mckinnon

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