Feb 17 2004Lesson 4By John Kennes.ppt

* Feb 17 2004 Lesson 4 By John Kennes International Monetary Economics Feb 17 2004 Interesting Reads about IS-LM What was lost with IS-LM (2003) working paper by Roger Backhouse and David Laidler. Highly critical. Macroeconomics by Burda and Wyplosz (2001), chapter 10. About money Monetary Policy without Money: Hamlet without the Ghost (2003) working paper by David Laidler. Some light reading Feb 17 2004 EMS Lecture 4. Chapter 12. Optimum Currency Areas Lecture 5. Chapter 13 EMU Lecture 6. Chapter 14 Review Lecture 7. Discussion of the project. Email any ideas in advance. Lectures on Monetary Systems Feb 17 2004 What types of monetary systems are in the following regions? Europe Asia North America South America Is European Monetary Integration exportable? Read: Barry Eichengreen (Dec 2002) Lessons of the Euro for the Rest of theWorld /users/eichengr/policy Monetary Systems around the world Feb 17 2004 The EMS was adopted in 1979 to preserve exchange rate stability within Europe. EU members were members of EMS, ERM (Exchange Rate Mechanism) initially optional ERM members were committed jointly to defend bilateral parity if necessary by unlimited interventions and loans. Realignments required consent of all members. The European Monetary System Feb 17 2004 ERM’s parity grid +/- 2.25% Mutual Support Unlimited committed. Consider DK and NL. Suppose krone weak. The Dutch can produce its own currency in infinite amounts. Joint Management of exchange rate realignments All members of the ERM must agree. Avoid beggar thy neighbour policies. The ECU Symbolic creation of the European Currency Unit (ECU). Official unit of account: basket of currencies, weighted by size of countries, initially at parity with US dollar 4 main elements of the ERM Feb 17 2004 The ECU: A basket of all EU currencies Feb 17 2004 Phase 1: Inflation differed quite widely and realigments were Frequent. Phase 2: All countries decided to adopt Bundesbank’s low inflation s