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Germany, Greece, Japan STRT 571 – Quinn/Vreeland.

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Presentation on theme: "Germany, Greece, Japan STRT 571 – Quinn/Vreeland."— Presentation transcript:

1 Germany, Greece, Japan STRT 571 – Quinn/Vreeland

2 Germany

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4 Capital mobility (open flows to FDI, e.g.)  Exchange RatesDomestic Regimes Monetary Fixed/Floating & Fiscal Policy Management (inflation, employment) how are inflation and exchange rates related?

5 key determinants of  XR PPP differences – ‘law of one price” -long run, “Walmart” effect, $9 apples Current account deficits or surpluses Presence or absence of capital controls -China, extensive outward restriction -US, UK = zero restrictions (+/-) Government monetary policies/inflation -interest rates (Brazil case) Fiscal policies (debt or surplus); gov debt Investor expectations (‘VaR’; sharks; ir parity) Government exchange rate ‘regimes’ Interest rate parity (covered vs uncovered) a*b*c*d*e*f*g = extremely complicated calculations

6 Q’s Germany, the ERM, and Central Banks 1) How is Germany paying for the reunification of the West and East, and why? 2) the Bundesbank must choose on July 16, 1992 what to do about its core interest rate. What are the arguments for and against raising interest rates? 3) How did George Soros make a billion USD? 4) What are the twin goals of the U.S. Federal Reserve?

7 BoP conventions (ex. 6 in Germany; ex’s 3&4 in Japan) always follow who gets the cash; cash = + Capital/Financial accounts (FDI, portfolio, transfers of ownership of fixed assets) Capital transferred out of a country is an asset, but is noted in the BoP as a debit (because the cash left the country) Capital transferred in is a liability, but is noted as a credit (because cash entered the country) the current + capital/financial accounts should = zero, but rarely do. China, e.g., in 2000 had a current account surplus of $20.5 billion, a $2 billion ‘surplus’ (=liabilities) in capital accounts, & $12 billion in errors and omissions Size of ‘errors and omission” indicates capital flight or unrecorded migrant remissions, among other things

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14 from JRV: “Answer: Democracy” 1944 Degree of global capital mobility Fixed exchange rates + Capital controls Floating exchange rates + Open capital flows 1870Interwar period Fixed exchange rates + Open capital flows Growing #’s of democracies Few democracies

15 Mr. Major and Black Wednesday Q: “Are you satisfied or dissatisfied with the way Mrs Thatcher / Mr Major / Mr Blair is doing her / his job as Prime Minister?” MORI polls Thatcher Thatcher Major Blair Blair Blair No. of monthly polls Number of polls where satisfaction greater than dissatisfaction Number of polls where dissatisfaction greater than satisfaction % negative 69% 79% 92% 0% 15% 71%

16 UK General Election 1997 CandidatesVotes PartyElectGain Loss Net % of tot al Net % Labour Cons LibDems

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21 Current accounts, 2008 Greece “restated” by IMF = -$50.1 billion

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24 A Greek Tragedy? Keep an eye on Finland and Hungary too!

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26 Japan US Greece EU Germany Italy India China

27 Brussels, 11 April 2010 Statement on the support to Greece by Euro area Members States Following the statement by the Heads of State and Government of the Euro area on 25 March, Euro area Members States have agreed upon the terms of the financial support that will be given to Greece, when needed, to safeguard financial stability in the Euro area as a whole. Euro area Members States are ready to provide financing via bilateral loans centrally pooled by the European Commission as part of a package including International Monetary Fund financing. The Commission, in liaison with the ECB, will start working on Monday April 12th, with the International Monetary Fund and the Greek authorities on a joint programme The programme will cover a three-year period. The euro area Member States are ready to contribute for their part up to € 30 billion in the first year to cover financing needs in a joint programme to be designed with and cofinanced by the IMF. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs. For instance, as of April 9th, for a three year fixed-rate loan granted to Greece, the rate would be around 5%.

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36 36 India – Infosys, Wipro US – Covansys, Keane Sales per employee, Q/L$50-51,000$96-99,000 Programmer wages, w$11,000$55,000 Unit labor cost = w ∙ (L/Q) $11,000/$50,000 = $0.22 of labor cost per dollar of output $55,000/$96,000 = $0.56 of labor cost per dollar of output Data from “Indian Software Industry in 2002, p. 11 for wage rates and Exhibit 10 for productivity data Estimates of unit labor cost in Indian and US firms from data in the case

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43 Q’s Japanese automakers: 1) What challenges did the leading Japanese automakers face in , and again in ? Why did these challenges emerge? 2) How well did the Japanese automakers face the challenges in ? What will they have to do differently in ? 3) What lessons can other firms take from the response of Japanese firms to Endaka? 4) what lessons for China

44 June 2009 A. Official reserve assets1,019, (1) Foreign currency reserves (in convertible foreign currencies)988, (a) Securities914, of which: issuer headquartered in reporting country but located abroad (b) total currency and deposits with:73, (i) other national central banks, BIS and IMF6, (ii) banks headquartered in the reporting country19, of which: located abroad (iii) banks headquartered outside the reporting country47, of which: located in the reporting country47, (2) IMF reserve position4, (3) SDRs2, (4) gold (including gold deposits and, if appropriate, gold swapped) , —volume in millions of fine troy ounces24.60 (5) other reserve assets (specify) —financial derivatives —loans to nonbank nonresidents —other Japanese reserves source: IMF

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