ECON335-The International Economy
1. What is an international financial crisis, and what are the two main causes?
2. In the text, the point is made that the expectation of a crisis from volatile capital flows is sometimes a self-fulfilling crisis. How can a crisis develop as the self-fulfillment of the expectation of a crisis?
3. What are three things countries can do to minimize the probability of being hit by a severe international financial crisis?
4. Why are crises associated with severe recessions? Specifically, what happens during an international financial crisis to create a recession in the affected country or countries?
5. What type of exchange rate is associated with a higher probability of experiencing a crisis? Why?
6. In a crisis not caused by macroeconomic imbalances, economists are uncertain whether a country should try to guard against recession or try to defend its currency. Why are these mutually exclusive, and what are the pros and cons of each alternative?
7. Explain the moral hazard problems inherent in responding to a crisis.
8. Some people argue that U.S. loans to Mexico in 1995 led to the Asian crisis. Explain the logic of this argument.
9. Some countries impose capital controls as a means of preventing a crisis. Evaluate the pros and cons of this policy.
10. How has the role of the IMF come under scrutiny in the recent discussion of reforms in the international financial architecture?