GOLD (A) Why were capital flows stabilizing during the gold standard era and why do they tend to be destabilizing now? Explain these terms. (B) Why is the gold standard considered to be a pre-Keynesian financial regime? (C) Explain how international shipments of gold (arbitrage) were supposed to enforce the mint parity (i.e., explain Hume s price-specie-flow mechanism). Why did so little gold actually cross borders?
2. Why do Eichengreen and Temin (2010) compare the eurozone to the gold standard and to the global imbalances surrounding the US and China?
3. Why would a country adopt capital controls on financial outflows? On financial inflows?
4. Explain how fixed or pegged exchange rates encounter a conflict between internal and external balance. Do floating rates resolve this conflict? Refer to the history of the managed float among the triad countries since 1973 in your answer. Are national economic sovereignty and free capital flows incompatible? Is the goal of national economic sovereignty outdated in a globalized world?
5. BRETTON WOODS (A) Why were the designers of the Bretton Woods system desperate to avoid prolonged deflationary macro adjustment? Why did the creators of BW want a compromise between fixed and floating exchange rates? How did the structure of the Bretton Woods system reflect concern about the conflict between internal and external balance? Be specific.
(B) Doesn’t a fixed exchange rate regime, especially a system with an adjustable peg, invite speculative attacks (Pugel one-way speculative gamble )? Discuss the US experience in the 1960s to early 1970s as an example.
(C) Explain the Triffin dilemma and how the events of the 1960s demonstrated the problem. Could the US and other participating countries have prevented the collapse of the BW regime or was it simply too flawed? If so, how? Explain.
(D) Why did the Bretton Woods financial system collapse? What lessons would you draw?
(E) Explain the impossible or unholy trinity.
6. According to the impossible trinity, floating exchange rates would permit free capital flows and independent monetary policy devoted to internal balance. Would you amend this analysis in light of the experiences with the triad float?
7. Why were floating exchange rates (acting as shock absorbers ) positively regarded in the 1960s? Why were they expected to work better than fixed or pegged rates? Discuss two of the serious problems that have arisen with the triad float. Does a floating regime require macro adjustments by participating countries? What is a managed float?
8. Was the European single currency a mistake? How does Greece s membership in the eurozone limit its options going forward? What is its likely future? Explain carefully.
9. The US$ was depreciating during the later years of the Bretton Woods international financial regime, and the US$ has been depreciating for much of this decade. Are the reasons the same? Explain carefully.
10. Could we avoid huge swings in exchange rates if the triad countries tried harder to coordinate macro policies? Is more coordination likely? Desirable?
