Author Question: Why did the EU countries move away from the EMS toward the goal of a single shared currency? What ... (Read 62 times)

rachel9

  • Sr. Member
  • ****
  • Posts: 495
Why did the EU countries move away from the EMS toward the goal of a single shared currency?
 
  What will be an ideal response?

Question 2

No central bank can be indifferent to its currency's value in the foreign exchange market. Discuss.
 
  What will be an ideal response?



epscape

  • Sr. Member
  • ****
  • Posts: 335
Answer to Question 1

(1 ) To produce a greater degree of European market integration by removing the threat of EMS currency realignments.
(2 ) Reduce German dominance of the EMS monetary policy.
(3 ) Given the move to complete freedom of capital movements within the EU, fixed but adjustable currency parities, may lead to ferociously speculative attacks, as in 1992-1993.
(4 ) To guarantee the political stability of Europe.

Answer to Question 2

 despite the Monetary Policy Autonomy theory of the original supporters of floating exchange rates
 exchange rate's role in inflation
 prices are sticky in the short run, so foreign developments can affect real interest rates and real exchange rates at home
 don't want their exchange rate to be too volatile as it affects the demand for their domestic products
 appreciation or depreciation can cause inflation that is difficult to counter
 banks intervene on a discretionary basis so it is still necessary for them to continue to hold foreign reserves
 dirty floats stabilize output and price level after shocks that affect exchange rates
 empirically: after 1973 countries have continued to intervene to affect exchange rates



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

The word drug comes from the Dutch word droog (meaning "dry"). For centuries, most drugs came from dried plants, hence the name.

Did you know?

Giardia is one of the most common intestinal parasites worldwide, and infects up to 20% of the world population, mostly in poorer countries with inadequate sanitation. Infections are most common in children, though chronic Giardia is more common in adults.

Did you know?

One way to reduce acid reflux is to lose two or three pounds. Most people lose weight in the belly area first when they increase exercise, meaning that heartburn can be reduced quickly by this method.

Did you know?

Cocaine was isolated in 1860 and first used as a local anesthetic in 1884. Its first clinical use was by Sigmund Freud to wean a patient from morphine addiction. The fictional character Sherlock Holmes was supposed to be addicted to cocaine by injection.

Did you know?

Cytomegalovirus affects nearly the same amount of newborns every year as Down syndrome.

For a complete list of videos, visit our video library