International Economic Policy

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International Economic Policy
2
International Fluctuations

• International business cycles
• international financial interdependence
• international trade multiplier
• the desirability of co-ordinating national
  macroeconomic policies
• The growing volatility of exchange rates
• increased stock of capital
• increased mobility of capital
• growth in speculation
• adoption of domestic macro targets
• conflicts in policies between countries

3
International Harmonisation of Economic Policies

• The G7/G8 meetings
• problem of divergence of economies

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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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Macroeconomic indicators for the G7 countries
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International Harmonisation of Economic Policies

• Difficulties in harmonising policy
• convergence in one objective may lead to
  divergence in another
• conflicting policy objectives
• unwillingness of countries to gear domestic
  policies to international objectives
• G8 policies are not binding
• Reactions to SE Asian crisis of 1997/8
• The future for co-operation

14
European Economic and Monetary Union

• The ERM
• features of the ERM
• the 1980s
• crisis in the ERM
• events of 1992
• events of 1993
• a return of calm

15
European Economic and Monetary Union

• The Maastricht Treaty
• the timetable for EMU
• the convergence criteria
• inflation
• interest rates
• budget deficits
• general government debt
• exchange rates
• Birth of the euro
• meeting the convergence criteria
• role of the European Central Bank (ECB)

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European Economic and Monetary Union

• How desirable is EMU?
• Advantages of a single currency
• eliminating conversion costs
• increased competition and efficiency
• elimination of exchange-rate uncertainty
• increased inward investment
• lower inflation and interest rates
• Disadvantages of EMU
• political arguments
• adjustment to shocks
• problem of asymmetric shocks
• EU12 may not be an optimal currency area
• regional problems

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Policies for Achieving Currency Stability

• The size of currency flows across the
  international exchanges
• Controlling exchange transactions?
• capital controls
• transactions tax ('Tobin' tax)
• non-interest-bearing deposits
• Objections to controls
• Exchange-rate target zones
• varieties of adjustable and movable pegs
• advantages and problems