【正文】 GH2) GH2 GH1 Y1 Y2 ADH(qH/F,YHTH, YF1 TF。1 Macroeconomic Policy and Coordination Under Floating Exchange Rates WONG Ka Fu 19 March 2023 2 Gold standard ?1870 1914 ?Central banks peg the prices of their currencies in terms of gold, and hold gold as official international reserves. ?Exchange rates among countries are fixed due to arbitrage. 3 Gold Country 1 Country 2 Country 3 4 Advantage of gold standard ?Limit the extent to which the central banks can cause increase in national price levels through expansionary moary policies. These limits make the real national monies more stable and predictable, thereby enhancing the transaction economies arising from the use of money. 5 Disadvantage of gold standard ?Constraints the use of moary policy to fight unemployment ?Tying currency values to gold ensures a stable overall price level only if the relative price of gold and other goods and services is stable. 6 Historical Background ?Great Depression in 1930s ?unemployment ?deflation ?bank failure ?Lack of confidence in paper money ?Demand for gold increased ?but national treasuries could not supply 7 Gold standard collapsed ?United Kingdom and some countries forced to abandon the gold standard ?The amount and frequency of moary transactions between nations contracted because ?The uncertainty about the value of money that no longer bore a fixed relation to gold ?Nations hoarded gold and money that could be converted into gold ?Reverted to barter exchange. 8 Competitive devaluation ?Other governments, desperate to find foreign buyers for domestic agricultural products, made these products appear cheaper by selling their national money below its real value so as to undercut the trade of other nations selling the same products. ?Trading rivals retaliates through similar devaluation 9 Gold standard collapsed: Result ?Between 1929 and 1932 ?prices of goods fell by 48 percent worldwide, and ?the value of international trade fell by 63 percent. 10 Lesson ?Convertibility of currencies from one to the other is an important element for ?international trade and ?economic development 11 A proposal by Harry Dexter White in the US John Maynard Keynes in the UK ? Need to establish a moary system and an international institution to monitor the moary system ? The system aims at ?encouraging the unrestricted conversion of one currency into another, ?establishing a clear and unequivocal value for each currency, and ?eliminating restrictions and practices, such as petitive devaluation 12 The birth of IMF ? July 1–22, 1944 ?Bretton Woods, New Hampshire, . ?The delegates of 44 nations negotiated for establishing the International Moary Fund ? December 27, 1945 ?Articles of Agreement enter into force upon signature by 29 governments ? May 6, 1946 ?Began operation when twelve Executive Directors five appointed and seven elected hold inaugural meeting in Washington. 13 Goldexchange standard or Bretton Woods System ?Adopted in 1944. ?The value of each currency was expressed in terms of gold (par value), and members were obliged to keep the exchange rates for their currencies within 1 percent of parity. 14 Two major elements ? Convertibility of the US dollar to gold: ?The United States defined the value of its dollar in terms of gold, so that one ounce of gold was equal to exactly $35. ?The . government stood behind this definition and would exchange gold for dollars at that rate on demand. ? Par values ?All other members had to define the exchange value of their money in terms of gold or in terms of the . dollar (of the weight and fineness in effect on July 1, 1944). ?Members kept the value of their money within 1 percent of this par value ?any contemplated change should be first discussed with other members in the forum of the IMF and obtained their consent before implementing the new par value. 15 Country 1 Country 2 Country 3 Gold 16 Reserve currency ?Between the end of World War II and 1973, the . dollar was the main reserve currency and ?almost every country pegged their currency to the . dollar. ?Exchange rates among countries are fixed due to arbitrage. 17 The asymmetric position of the reserve center (3 countries) ?Assume three countries and three currencies in the world ?Country 1 is the reserve center if both country 2 and country 3 peg their currencies to country 1’s. Country 1 is also peg to 2 3, but only passively. ?., countries 2 and 3 have to intervene the foreign exchange market to keep their rate fixed to country 1’s. 18 Country 1 Country 2 Country 3 19 The asymmetric position of the reserve center ?But, country 1 need do no intervention in the forex market ?and is free to set its moary policy. 20 If country 1 expands its money supply ?Country 1’s interest rate falls. ?To maintain the fixed rate, both countries 2 and 3 have to ?buy reserve assets with their own currencies, ?expanding their money supplies ?pushing their interest rate down to the level established by the reserve center. ?Output throughout the world (all the countries) would expand. 21 The asymmetric position of the reserve center (N countries) ?Assume N countries and N currencies in the world ?Country 1 is the reserve center if all other N1 countries peg their currencies to country 1’s. ?., all N1 countries have to intervene the foreign exchange market to keep their rate fixed to country 1’s. 22 If country 1 expands its money supply ?Country 1’s interest rate falls. ?To maintain