Chapter 5 Essay questions

The fragility of incomplete monetary unions
  1. Explain why time is against fixed exchange rate regimes.
  2. Explain the difference between the first- and second-generation models of exchange crises.
  3. Explain why fixed exchange regimes tend to become asymmetric in that one country sets monetary policy for the system as a whole.
  4. Explain why multiple equilibria in an incomplete monetary union like the Eurozone arise because of a liquidity problem.
  5. Why is it that countries that are pushed into a bad equilibrium experience a banking crisis?
  6. When countries are in a bad equilibrium they have to switch off the automatic stabilizers in the budget. Why is this?
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