AG912 International Financial Markets and Banking

Tutorial 9
Tutorial Questions:

Explain the basic concept of purchasing power parity and comment on the practicality of
it as well as available empirical evidence.

Briefly, what are the main arguments for fixed versus flexible exchange rate regimes?
(Please read any one of the papers marked **.)

Central banks are the lender of last resort for domestic banks. How effective are they in
this role? Use Jacome et al. (2011) in your answer.

Currently some central banks are actively intervening in financial markets to stimulate
their economies. Are there any insights offered by Yamori (2005) as to whether or not
this is likely to be successful?

Reading: ME ch 16 and HB ch 3&7 / A ch 7 / VM ch 3

Additional reading *:

Taylor, M.P. (2003) ‘Purchasing Power Parity’, Review of International Economics 11(3), pp.
436–452. Available at: http://onlinelibrary.wiley.com/doi/10.1111/1467-9396.00394/pdf
(accessed 28 August 2018)

D’Arista, J. (2009) ‘The evolving international monetary system’, Cambridge Journal of

Economics 33, pp. 633–652. Available at: https://doi.org/10.1093/cje/bep027 (accessed 28
August 2018)

**Kenen, P.B. (2000) ‘Fixed versus Floating Exchange Rates’, Cato Journal 20(1), pp. 109- 113.
Available at: https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2000/5/
cj20n1-13.pdf (accessed 28 August 2018)

**Hoffmann, M. (2005) ‘Fixed versus Flexible Exchange Rates: Evidence from Developing
Countries’, University of Cologne working paper. Available at:
http://www.cfr-cologne.de/download/workingpaper/cfr-05-03.pdf (accessed 28 August
2018)

Jacome H., L.I., Sedik, T.S., and Townsend, S. (2011) ‘Can Emerging Market Central Banks Bail
Out Banks? A Cautionary Tale from Latin America’, IMF Working Paper WP/11/258. Available
at: http://www.imf.org/external/pubs/ft/wp/2011/wp11258.pdf (accessed 28 August 2018)

Yamori, N. (2005) ‘Contemporary Monetary Policy and Financial System Issues of Japan’,
Nagoya University working paper. Available at
https://www.researchgate.net/publication/37504736_Contemporary_Monetary_Policy_and
_Financial_System_Issues_of_Japan (accessed 28 August 2018)

*links to these are also on myplace