It depends ... reasons can vary, and often, presumably, causality runs the other way around: First fundamentals deteriorate, or expectations change quickly, and then follows a large devaluation. Once that happens, foreign currency denominated debt rises (in terms of domestic currency), which leads to bankruptcies, etc.
I'm not an economics student, but am interested in this subject, so thank you for posting this. However, I can't tell which direction on the axis for the exchange rate represents depreciation and appreciation. At 8:06 you conflate a lower exchange rate with a depreciated currency, which would make sense to me. But then at 9:30 you seem to conflate a higher exchange rate with a depreciated currency. Unless I've just misunderstood the phrasing of your sentence there!
A higher exchange rate indicates depreciation. For instance, in 2018, $1.5 = £1 and in 2019 $1.8 = £1. The "exchange rate" has risen(depreciated) since more dollars are required to buy £1.
why does the AA curve shift at 17:08, why cant the authorities use fiscal policy to bring the exchange rate back to E bar?? would appreciate an answer thanks :)
I don't understand why more depreciated exchange rates means lower current account. If Marshell Lerner's condition holds, should a lower exchange rate mean greater current account surplus?
Since any point on II curve is full employment (Yf). So when Government spending increase, Aggregate output increase (beyond Yf)-> Overemployment Thus, to prevent overheating from overemployment, Central bank must appreciate Exchange rate (by reducing money supply->interest rate increase->Exchange rate appreciated), so that Trade balance is reduce (decreasing current account). By reducing CA to bring down overemployment caused by increase in gov spending, Y is at natural level again (Yf). So to boil it down into one curve When Y increase (caused by G in this case), E must appreciate (to reduce CA, finally reduce aggregate output back to Yf).
Under the BW system, they had exchange rate stability and independent monetary policy. They had strict capital controls.
It depends ... reasons can vary, and often, presumably, causality runs the other way around: First fundamentals deteriorate, or expectations change quickly, and then follows a large devaluation. Once that happens, foreign currency denominated debt rises (in terms of domestic currency), which leads to bankruptcies, etc.
I'm not an economics student, but am interested in this subject, so thank you for posting this. However, I can't tell which direction on the axis for the exchange rate represents depreciation and appreciation. At 8:06 you conflate a lower exchange rate with a depreciated currency, which would make sense to me. But then at 9:30 you seem to conflate a higher exchange rate with a depreciated currency. Unless I've just misunderstood the phrasing of your sentence there!
A higher exchange rate indicates depreciation. For instance, in 2018, $1.5 = £1 and in 2019 $1.8 = £1. The "exchange rate" has risen(depreciated) since more dollars are required to buy £1.
splendid and thank you for this enlightened and productive lecture
why does the AA curve shift at 17:08, why cant the authorities use fiscal policy to bring the exchange rate back to E bar?? would appreciate an answer thanks :)
why is there a currency crisis after devaluation?
I don't understand why more depreciated exchange rates means lower current account. If Marshell Lerner's condition holds, should a lower exchange rate mean greater current account surplus?
Since any point on II curve is full employment (Yf).
So when Government spending increase, Aggregate output increase (beyond Yf)-> Overemployment
Thus, to prevent overheating from overemployment, Central bank must appreciate Exchange rate (by reducing money supply->interest rate increase->Exchange rate appreciated), so that Trade balance is reduce (decreasing current account). By reducing CA to bring down overemployment caused by increase in gov spending, Y is at natural level again (Yf).
So to boil it down into one curve
When Y increase (caused by G in this case), E must appreciate (to reduce CA, finally reduce aggregate output back to Yf).
Thanks for the explanatory record.
Thank you, I got helped, I can score some marks on this now :)