ECON 424 Study Guide - Winter 2018, Comprehensive Midterm Notes - Xpression Fm, Ordinary Least Squares, Old Testament
ECON 424
MIDTERM EXAM
STUDY GUIDE
Fall 2018
find more resources at oneclass.com
find more resources at oneclass.com
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Criteria for applying optimum currency area: small size and openness. Small countries must trade because they do not have the resources to produce everything (geographically constrained) Since they must stay opened to trade (and trade a lot), fixing the exchange rate removes exchange rate fluctuations which would affect and economy that must trade a lot more: symmetry of shocks. Two party trading experience the same shock: labor mobility. Remittances (money) would flow between the 2 countries and affect the exchange rate if currencies are different. Adopt one currency to solve it (aka european union: fiscal transfers in a federal system. Focus on monetary policy (p stability), less of fiscal. P(cid:396)i(cid:272)e sta(cid:271)ility did(cid:374)"t e(cid:374)su(cid:396)e (cid:373)a(cid:272)(cid:396)oe(cid:272)o(cid:374) sta(cid:271)ility (cid:894)lo(cid:449) i(cid:374)flatio(cid:374)(cid:895) Now: monetary policy (p stability) ajd macroprudential policies (financial stability) Goal of macro-prudential policy: curb risk-taking and overleveraging in economy. Needed bc monetary policy can be constraining (zero lower bound)