Author Question: Explain why a exchange rate-based stabilization plan may result in a real appreciation? What will ... (Read 93 times)

CORALGRILL2014 · **on:** Jun 30, 2018

Explain why a exchange rate-based stabilization plan may result in a real appreciation?

What will be an ideal response?

Question 2

Explain how Eurobanks played a role in the Iranian Hostage Crisis in 1979.

What will be an ideal response?

scottmt · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Real appreciation may result for any of three reasons: first, persistent inflation due to say lagged wage indexation; second, lack of credibility of the policy; and third, productivity shifts due to inflation reduction or efficient reforms. See also Figure 22-3 for illustration in the case of Argentina, Chile, Brazil and Mexico. See also Chapter 15.

Answer to Question 2

When American hostages were taken by Iranians at the American embassy in Tehran, President Carter froze all Iranian assets in U.S. banks as well as in their European branches.