The market movements that led to the European Exchange Rate Mechanism's demise in 1992, the Mexican peso devaluation in 1994, the Asian financial crisis in 1997-98, and the near collapse of Long-Term Capital Management (LTCM) in 1998 demonstrated the possibility of such actions.
A London newspaper reported a mystery investor might have made $850 million in the futures market by betting the United States credit rating would be downgraded. The Daily Mail on Tuesday reported that speculation about the investor's identity centered on George Soros. The left-wing billionaire made more than $1 billion on currency speculation when the British pound left the European Exchange Rate Mechanism in 1992.
The author looks at the interaction between fiscal policy and monetary policy in a somewhat different case, one in which the central bank consistently experienced a high degree of independence and no fiscal crisis occurred: namely, Italy between Sep 1992, when it exited the European Exchange Rate Mechanism, and May 1998, when an official announcement was made that it would join the European Monetary Union. While Italy experienced moderately high rates of inflation throughout the 1970s and the early 1980s (peaking at around 21% in 1980), by 1992 inflation had been stable at around 5% for many years. Thomas J. Sargent and Neil Wallace remarked that a truly independent monetary policy is impossible if fiscal deficits create expectations of future government interference in monetary affairs...
"Legal" Cost-Cutting. II. "Medical" Cost-Cutting. III. Waiting For The "Three Sisters".
... countries must join the exchange-rate mechanism (ERM II) under the European Monetary System (EMS) ...
The result of this expansion was the dismal crisis of the early 1990s, when the Swedish Central Bank vainly tried to link an overvalued krona to the European Exchange Rate Mechanism and then protect it with 500 percent interest rates. The remnants of the old model - high income taxation (60.3 percent on average), the high value-added tax (25 percent), the regulated labor market, and the insufficiently reformed social-redistribution systems - are the problematic areas in the Swedish economy, not its bold vanguard.
LONDON (HedgeWorld.com) - A new study by fund research provider Lipper finds that exchange-traded funds (ETF) can sometimes deviate from the market indices they are designed to track, providing a profit-making opportunity for market makers. Lipper, which is the parent company of HedgeWorld and a subsidiary of Reuters, examined 21 ETFs in the report. A significant arbitrage opportunity arises from the price inefficiencies of European ETFs pegged to international indices, the study found. The factors causing this included liquidity; inefficiencies in the creation-unit mechanism; trading-day differences between exchanges; and exchange-rate bias.
...Keynessian models of the adjustment mechanism which are characterized by the adjustment of the o...
LONDON (Reuters) - Buying the Danish crown against the euro has become popular among hedge funds and other speculative investors looking to protect themselves against a break-up of the single currency, though some warn it could be a risky bet. Denmark is not in the euro zone but its central bank, the Nationalbank, intervenes to keep the crown pegged within a band against the euro. Many assume that if the euro zone broke up the Nationalbank would switch the crown's peg to a new German currency, which would probably be the euro's strongest successor.
... currency via the ERM II exchange rate mechanism. "If there was a breakdown of the euro then Denmar...
... the G-20 are likely to provide genuine mechanisms for cooperation and inclusion or simply become ins...
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