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18 Cards in this Set
- Front
- Back
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Monetary Policy
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the central bank control of money supply
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Three instruments of monetary policy
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1. Open market operations: the purchase and sales of gov bonds by central banks
2. reserve requirement 3. discount rate |
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Instruments of Fiscal Policy
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1. Gov purchases: spending in buying goods and services
2. Taxes |
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Monetary Policy with Fixed Exchange Rates
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Ineffective with perfect capital mobility
effective in the short run only when domestic and foreign assets were imperfect substitutes |
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Fiscal Policy with fixed exchange rates
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effective even if there exists perfect capital mobility
increased gov spending leads to higher income and interest rate=> to maintain the fixed exchange rate, the central bank has to increase money supply => income increases while interest rate will return to its original level |
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Monetary policy with floating exchange rates
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can change level of income
increased money supply leads to lower domestic interest rate and higher income (spending)-> domestic currency depreciates-> more exports, less imports-> income increases further |
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Fiscal Policy with Floating Exchange Rates
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no effect on national income under floating exchange rate system
increased government spending causes higher interest rate and income-> domestic currency appreciates -> exports fall and imports increase -> income decrease |
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International Policy Coordination
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to make fiscal policy effective: coordination of policy makers in all nations
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Onshore banking system
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domestic banking activities conducted in local currency
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Types of onshore banking
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commercial
investment |
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offshore banking system
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deposits, loans, and bonds denominated in a currency but issued outside the country where the currency is legal tender
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Commercial bank
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chartered in the us, same regulations and requirements as a domestic bank, offer full services
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subsidiary bank
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similar to commercial bank, owned and operated as a US subsidiary of a foreign commercial bank
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Agency of a foreign bank
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offer limited banking services, cannot accept deposits
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branch of a foreign bank
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has full banking powers, not chartered in the us as a bank
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international banking facility
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not a separate entity, not subject to US reserve requirements or interest rate ceilings, only deal with foreign residents, parent, and other IBFs
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Eurodollar
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dollar deposits held outside the US
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Reasons for offshore banking
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political
economic: less regulation, smaller spread |
