Small Open Economy Dynamic Stochastic General Equilibrium Model

ECON 2301 Principles of Macroeconomics Time: Th 7:05 pm – 9:45 pm Synonym: 40512 Section: 023 Room: NRG2 2120

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

To investigate this global impact, the first challenge we encounter is what is the beginning and ending period for this economic event. To find more reliable time frame, we use the timeline of the global financial crisis given by Federal Reserve Bank of St. Louis. This timeline is also adopted by Shynkevich (2016). In this global event, we can see several positive arbitrage profit occur in these 4 different maturities (mostly seen in 1-month and 3-months). Furthermore, in terms of average arbitrage profit, the average arbitrage profit of USD to GBP is greater than that of GBP to USD in only 3-months maturity.

While it is true that the use of macroeconomic have declined in the twenty-first century, nevertheless, the governments’ policies are still effectives and have assisted in promoting economic growth. Fiscal policies and monetary policies are two of the ways the states manage the national economy (Barma and Vogel, p. 540). Through the fiscal policies, which consists of the taxation and government expenditure, the federal government is able to positively or negatively affect economic activities, and also be able to stimulate certain sectors of the market (Barma and Vogel, p. 540). While strict restriction on monetary policies, particularly the flow of capitals can affect the level of trade and foreign investments in a nation, states are still capable of controlling such economic activities through their

As the world’s largest economy, every move the United States makes has widespread effects throughout the global markets. Around the world, there has been speculation of whether the U.S. will raise interest rates by the end of 2015. With all indications pointing to a rate increase, concerns have arisen about the potential ripple effects on the rest of the world. Fundamentally, raising interest rates come hand in hand with an appreciating U.S. dollar. In many parts of the world the U.S. Dollar is used as a major benchmark of current and future economic growth. For developed countries, a strong U.S. dollar can be viewed as positive, however emerging economies will face a different fate. As the world becomes more financially intertwined,

Describe the Bank of Canada’s inflation-targeting policy. In particular, do not forget to describe the goals of

Fiscal and monetary policies focus on quickly returning the economy to sustainable, healthy growth. Any type of fiscal relief package will boost consumer and business spending and can augment the nation's long-term growth potential. Expansionary monetary policy can stimulate growth and provide insurance against the possibility of deflation. This paper will present information on four topics: (1) tools used by the Federal Reserve to control the money supply, (2) how these tools influence the money supply and in turn affect macroeconomic factors? (3) how money is created? (4) recommended monetary policy combinations that best achieve a balance between economic growth, low inflation, and a reasonable

At the last FOMC meeting, the Committee found the economy has continued to expand at a moderate pace and it reaffirmed its commitment to “maintain a stable price level, economic growth, and full employment” (Focus, 2012, p. 1). However, the FOMC also knows that “without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions” and that “strains in global financial markets continue to pose significant downside risks to the economic outlook” (p. 1). To promote continued economic recovery and to keep a check on inflation, the

We will now examine the causes and the sequence of events from the Great Depression 1929-1939 and the Global Financial Crisis in 2007-2009. Although they both initialled in the United Stated, the effect also severely affected the Europe. The worst affected countries such as Austria, Portland, German and French, suffering Real GDP Loss of -22.45%, -20.70%, -16.11% and -14.65% respectively during 1929-1933 (Maddison, 2006).

The economic turmoil of 2008 is arguably the worst financial crisis since the great depression of the 1930s. Although financial crisis is not entirely new, each one is characterized by unique challenges that make it difficult to make a prediction on when and how the next financial crisis might occur. The financial crisis of 2008 to 2009 was marked by a failure in the efficiency of the financial markets, inability of regulatory bodies to regulate the financial product and was catalyzed by weak macroeconomic fundamentals prevailing at the time. In the aftermath of the turmoil financial crisis, there has been a debate in the financial community on whether there are specific indicators that precipitate a financial crisis and whether the global economy is at a risk of experiencing the a repeat of a financial crisis of a similar nature to the crisis of 2008. The

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)

Monetary and fiscal policy and their applications to the third world countries with a huge informal sector

My interest on international economics more emerged when I did an internship at Central Bank of Indonesia as Researcher in June 2006. During the internship, I performed monetary, financial and banking researches and prepared papers using economic and statistical tools for preparing validation and recommendations to senior management. I utilized this opportunity to enrich my modality for writing Internship Report – equalled to thesis – which it had me been awarded as the best Faculty’s internship programme in 2007. At the same time, I was also an Assistant Lecturer at my faculty for the subjects of Statistics and Monetary Economics. The subject of Statistics had developed my logical and mathematical framework toward solving economic and financial problems. In addition, teaching Monetary Economics

Fluctuations in the economy are normal anywhere in the world and have gone through multiple series of highs and lows ever since scholars began the study of economics. One of the most well-known economic booms occurred when the Industrial Revolution began in the United Kingdom. Coincidentally, the recently announcement of the exit of United Kingdom (UK) from the European Union (EU) caused a great deal of uncertainty among investors across the world and this affected the economy globally. It is not surprising to see that events happening in Europe can greatly affect the stock markets around the world. The exit is confirmed after a referendum was held and passed nationally where the count of votes to exit was higher than to remain in the European Union. An exit from the EU is a first of its kind and will create a high degree of fluctuations in the economy especially during the process of withdrawal. This will nonetheless disrupt the European Commission’s Capital Markets Union (CMU) plan which is what this paper is about. The European Commissions introduced CMU to integrate capitals throughout the EU allowing the European Commission to mobilize funds in attempt to build a more efficient Single Market. UK’s exit will likely have negative impacts on the CMU’s plan since there will have to be restructuring of the plan depending on the negotiations of exit between UK and the EU. Until we know where the UK and

Fiscal policy refers to government policies concerning taxes and government spending while monetary policy refers to all actions by the Central Bank to control the quantity of money supply and availability of credit in the economy. Fiscal and monetary policies play a critical role in influencing the pace at which an economy will grow and its capacity to deal with key challenges both endogenous and exogenous. Kenya faces various domestic policy challenges which include a high population growth rate, high unemployment rate, significant weaknesses in infrastructural capacity, inadequate levels of domestic savings and investments, and poorly capacitated counties to handle devolution. External challenges include security risks and spillover effects from other parts of the global economy. Fiscal and monetary policies affects the macroeconomic stability of the country and whether Kenya will transition into a middle income nation by 2030 as envisioned in vision 2030 through an annual economic growth rate of 10% p.a. These policies therefore need to be responsive in addressing these challenges as well as propel the country to economic growth while maintaining price stability. The country should therefore give priority to the following key areas.