Question

Briefly compare these following concepts, and relate the importance of the concepts in
the international monetary economic analysis.
a.
Imperfect capital mobility and perfect capital mobility
b.
Internal Balance (IB) and External Balance (EB) curves
c.
Incipient BOP deficit and incipient BOP surplus
d.
Fisher effect and international Fisher effect
e.
Crawling peg and managed floating of the exchange rate
f.
The version of John Williamson (1987) and Paul Krugman (1991) target zone
proposal

Answer 1

(a) Imperfect capital mobility and perfect capital mobility

• In Perfect capital mobility , when Currency is depreciated IS curve shifts rightward while in perfect capital mobility when Currency is depreciated LM curve shifts rightward
• In perfect capital mobiy , there is no capital mobility while in imperfect capital mobility BP curve is positively sloping

(b) Internal Balance (IB) and External Balance (EB) curves

• Internal balance is achieved at full employment and stable price while external balance is achieved at equlibrium of balance of payment i open economy and output may not be at full employment
• External balance is when money is brought in , in a country through export is roughly equal to amount if money spend on imports while internal balance is equal to consumption + Investment + government spending+ current account

(C) Incipient BOP deficit and incipient BOP surplus

• Incipient BOP deficit means country import more than Export while incipient Bop surplus means a country Export more than import
• Incipient BOP deficit a country has to borrow from other countries to pay for its imports while im incipient BOP surplus a. Country is independent and has enough capital to pay for imports

(D) Fisher effect and international Fisher effect

• International fisher effect is an hypothesis which shows the difference in nominal interest rates and spot exchange rate between two countries while fisher effect is Shows fhe relationship between the inflation and interest rate which is real or nominal
• Formula for fisher effect is expected rate of inflation + interest rate while formula for international fisher index is nominal interest rate - spot exchange rate