1 / 12

Oye – III -

Oye – III -. Money and finance in the 1930s and 1980s. P fc = $. S. D. Q. Flexible exchange rates. Exch. rate. Inflation. D fc. Imp . Curr Acct balance. Curr Acct Def. Devaluation. Exp . P fc = $. (fixed). D. Q. Fixed exchange rates. Exch. rate. Decline in reserves.

lenka
Télécharger la présentation

Oye – III -

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Oye – III - Money and finance in the 1930s and 1980s

  2. Pfc=$ S D Q Flexible exchange rates Exch. rate Inflation Dfc Imp  Curr Acct balance Curr Acct Def Devaluation Exp 

  3. Pfc=$ (fixed) D Q Fixed exchange rates Exch. rate Decline in reserves Dfc Inflation Imp  Curr Acct deficit Real appreciation Reserves Decline Exp 

  4. Norms of the gold standard Primary Norms: Secondary Norms: Do not privatize: - Exchange controls - Loans - Sliding tariffs Simmons 1994

  5. International lending in the 1930’s loans US surplus German WWI reparations Collapse: • Run on the Austrian Schilling, 1931 • Run on the German RM 1931 > default, cancellation of reparations Discrimination: • UK - Sterling bloc: loans, markets, debts • Germany - service British banks - not US banks, bonds UK, France WWI debts

  6. Breakdown and reestablishment Breakdown • UK 1931 • US 1933 • France 1936

  7. Breakdown and reestablishment Reestablishment • Tripartite Agreement 1936, further French devaluation • Explanation: interests changed • costs of unilateral cooperation declined • US, UK preferred France’s devaluation to commercial discrimination • reserve holdings liquidated

  8. Objections • Circular • Infer interests from behavior • Explain behavior in terms of interests • Was there cooperation, harmony or mutual defection after 1936?

  9. 1982 Debt Crisis--Origins • Rapid expansion of sovereign lending in the 1970s • Reaganomics • U.S. budget deficit → inflation, strong $ • High U.S. interest rates → strong $ → high ratio of debt service/net exports • 1979 oil price shock • Overcommited capital in money-center banks; no incentives for regional banks to lend • Expectations shift → credit dries up → default Contagion effect

  10. Managing the 1982 Debt Crisis IMF, IBRD, FED • 1985 Baker plan (private, IBRD, IMF); little private lending forthcoming • 1989 Brady plan • Conclusion: privatization is necessary Borrowers Banks

  11. Objections • Subsequent evidence: Resumption of portfolio investment in 1990s after successful domestic adjustment • Theoretical: the debt issue area is fundamentally different from trade • There is a basic commitment problem • Lending will dry up unless the commitment problem is resolved

  12. Macroeconomic coordination • Spillovers are public • 1978 Bonn Summit: any effects? • FRG delays a fiscal expansion • 1981-1985 Reagan’s non-contingent strategy • Contraction 1981-1982 • Expansion after 1982 • 1985 Plaza Accord to weaken the dollar • Japan refuses expansionary fiscal policy • Dollar declines because Fed lowers interest rates

More Related