Prof.univ.dr. Moisa ALTAR D0FIN, 08. Oct. 2013


1. Some Lessons of Euro Crisis
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Finance and financial markets were at the heart of the global economic crisis that began in August 2007. Financil fragility. Mirroring mainstream macroeconomic theory,most of the attention focused on monetary policy, fiscal policy, and structural reform in nonfinancial markets (especially labor markets). Commentary on EMU’s performance during its first decade generally paid much less attention to financial factors than now seems warranted


3 . nor of the potential costs of failing to do so. But the report gave little hint of the far-reaching implications (fiscal and otherwise) of adequately addressing financial-market vulnerabilities. 260).Policy trilemma (Maurice Obstfeld)   One cannot simultaneously maintain all three of (1) crossborder financial integration. (2) financial stability. and (3) national fiscal independence. EMU@10 went on to suggest a broadening of the EU’s surveillance system for the euro area to include financial variables such as bank credit and asset prices (p.

4 . The European System of Central Banks and of the ECB. the Excessive Deficits Procedure (as implemented through the Stability and Growth Pact).The Original EMU Architecture: Focus on Monetary and Fiscal Polices   The design of the Maastricht safeguards aimed to achieve two main objectives: • price stability • solvency of national public sectors without external bailouts or inflation-drivendevaluation of public debts. and the Maastricht treaty’s no-bailout clause.

Rogoff 5 . NBER. EU. Brussels: European Commission. 2008 3. C. W.1 1.References cap...Reinhard. C.P. European Commission (Directorate-General for Economic and Financial Affairs). Economic Papers 493 2. M (2013) :” Finance at Center Stage: Some Lessons of the Euro Crisis”.Reinhard. EMU@10: Successes and Challenges after 10 Years of Economic and Monetary Union. K (2011) :” A decade of debt”. Ostfeld.Rogoff.16827 3.

Evolution of the International Monetary System 6 .

     Bimetallism: Before 1875 Classical Gold Standard: 1875-1914 Interwar Period: 1915-1944 Bretton Woods System: 1945-1972 The Flexible Exchange Rate Regime: 1973Present 7 .

Bimetallism     A “double standard” in the sense that both gold and silver were used as money. Some countries were on the gold standard. some on the silver standard. some on both. Both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Gresham’s Law implied that it would be the least valuable metal that would tend to circulate 8 .

Gold could be freely exported or imported.Classical Gold Standard: 1875-1914    During this period in most major countries: Gold alone was assured of unrestricted coinage There was two-way convertibility between gold and national currencies at a stable ratio. 9 . The exchange rate between two country’s currencies would be determined by their relative gold contents.

Misalignment of exchange rates and international imbalances of payment were automatically corrected by the price-specie-flow mechanism  10 .Highly stable exchange rates under the classical gold standard provided an environment that was conducive to international trade and investment.

Attempts were made to restore the gold standard. but participants lacked the political will to “follow the rules of the game”.Interwar Period :1914-1944    Exchange rates fluctuated as countries widely used “predatory” depreciations of their currencies as a means of gaining advantage in the world export market. The result for international trade and investment was profoundly detrimental 11 .

dollar was pegged to gold at $35 per ounce and other currencies were pegged to the U. Each country was responsible for maintaining its exchange rate within ±1% of the adopted par value by buying or selling foreign reserves as necessary.S.S. the U. dollar. The Bretton Woods system was a dollar-based gold exchange standard 12 .Bretton Woods System: 1944-1972    Under the Bretton Woods system.

3. Basic concepts and the small open economy  Preferences 13 .

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16 .present value price.

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Define the permanent level of output ¯y as the number that solves the current account balance is given by 21 .

once we have solved for consumption ct. we can use the flow constraints and the initial condition B0 to solve for the stock of bonds at any date t 22 .More generally.