Download International Monetary Arrangements and European Monetary Union: Terms and Definitions and more Quizzes Economics in PDF only on Docsity! TERM 1 Reasons for International Monetary Arrangements (6) DEFINITION 1 1. Promoting international trade and specialization2. Promoting free trade3. Avoiding tariffs and other protective measures4. Avoiding exchange controls5. Avoiding beggar- thy-neighbor policies6. Avoiding excessive currency fluctuations TERM 2 Short-run Macro goals DEFINITION 2 Internal balance (full employment and low inflation) and external balance (stable current account/trade balance) TERM 3 Benefits of a monetary union (5) DEFINITION 3 1. Elimination of direct transaction costs2. Elimination of indirect transaction costs3. Elimination of exchange rate uncertainty4. Elimination of uncertainty of future prices5. Elimination of exchange rate uncertainty TERM 4 History of international monetary arrangements DEFINITION 4 1870-1914 Gold Standard ---> 1922-1931 Gold Exchange Standard ---> 1946-1973 Bretton Woods ---> 1972-1978 The Snake ---> 1979-1992 EMS (European Monetary System) ---> 1999- EMU (Economic and Monetary Union) TERM 5 ECB, EMU, EMC DEFINITION 5 European Central Bank, Economic and Monetary Union, European Monetary System TERM 6 EDP, SGP DEFINITION 6 Excessive Deficits Procedure, Growth and Stability Pact TERM 7 ATS DEFINITION 7 Austrian Schilling TERM 8 BEF DEFINITION 8 Belgian Francs TERM 9 DEM DEFINITION 9 Deutsche Mark TERM 10 IEP DEFINITION 10 Irish Pound TERM 21 CYP DEFINITION 21 Cyprus Pound TERM 22 SKK DEFINITION 22 Slovak Koruna TERM 23 EEK DEFINITION 23 Estonian Kroon TERM 24 Steps of SGP Monitoring DEFINITION 24 1. Ratio of gov't deficit must be below reference value (3% GDP)2. Gov't debt must not exceed reference value (60% GDP)3. If exceeded, Commission prepares a report4. Monetary Committee will form an opinion of the report5. Commission addresses European Council6. European Council makes recommendation to state (private)7. If no action, becomes public8. If still no action: ask EIB to reconsider lending to state, require the state to make a deposit in Community, impose a fine (.2-.5% GDP) TERM 25 MTO, CTBOIS DEFINITION 25 Medium Term Objective, Close to Balance or in Surplus TERM 26 Reserve Currency DEFINITION 26 1) Other currencies peg to it 2) Other countries hold the currency as foreign reserves TERM 27 International Currency DEFINITION 27 Prices quoted in that currency TERM 28 Preconditions for being a Reserve Currency DEFINITION 28 1) History, Inertia 2) Economic size of the country 3) Well- developed financial markets 4) Confidence in the value of the currency TERM 29 Advantages of Reserve Currency DEFINITION 29 1) Convenient for business people 2) Creates more business in the domestic financial sector 3) Seignorage 4) Prestige and Political Power TERM 30 Debt to GDP Equation DEFINITION 30 Change in b = bx(i - inflation - y) - z where b is the debt to GDP ratio and z is the primary budget surplus TERM 31 Optimum Currency Area Assessment Criteria DEFINITION 31 1) Inflation Preference 2) Trade Openness 3) Industrial Structure 4) Wage Flexibility 5) Labor Mobility 6) Fiscal Integration TERM 32 Convergence of Interest Rates Criteria for EMU entry DEFINITION 32 Average of 3 best performing countries + 2% TERM 33 EFSF DEFINITION 33 European Financial Stability Facility = created at Ecofin Council; EFSF is able to issue bonds guaranteed by EAMS for up to 440 billion for on-lending to EAMS in difficulty TERM 34 Euro Pact DEFINITION 34 The Pact for the Euro which establishes a stronger economic policy coordination for competitiveness and convergence (attached) has been endorsed. TERM 35 4 Rules of Euro Pact DEFINITION 35 1) It will be in line with and strengthen the existing economic governance in the EU, while providing added value.2) It will be focused, action oriented, and cover priority policy areas that are essential for fostering competitiveness and convergence.3) Each year, concrete national commitments will be undertaken by each Head of State or Government.4) Pact will fully protect integrity of the Single Market
