Reference no: EM132606009

1. Consider two large economies, D and F, where D alone gets hit with a negative expected inflation shock. D's central banker is very inflation-fighting and wants to keep currency stability (fixed exchange rates), capital mobility, and monetary autonomy. Is it true that if F can sterilize successfully while D can't, D faces a 'trilemma'?

2. In the Asian Crisis model, what difference in the dynamics of banking and exchange crisis would there be if foreign banks allowed local emerging market banks to pay off their loans 50% in local currency.

3. In the Asian Crisis model, what difference in the dynamics of capital flight would there be if international investors had the same information set as locals did.

4. Canada has often been designated a 'petro-currency' - its exchange rate strongly correlated with the world price of oil. Suppose the world price of oil jumped strongly for all countries - a global positive vt Assume all countries are identically inflation fighting, and their central banks respond appropriately to the shock, but that the vt shock is effectively 'bigger' in countries where oil production is a larger proportion of GNP. Can you justify the positive correlation of the oil price with the exchange rate for these oil exporting countries?