30054 INTERNATIONAL AND MONETARY ECONOMICS

Review questions on the history of the international

monetary system
1. a) What are the elements of the incompatible trio in exchange rate regimes?
b) Briefly explain why they are incompatible.
c) How was the incompatible trio problem solved in the classical gold standard?
2.
a) What were the gold parities in the gold standard regime?
b) How would gold arbitrages push market exchange rates towards gold parities?
3.
a) Very briefly describe the Hume mechanism in the gold standard.
b) The mechanism can also involve the so called rules of the game for monetary
policies. In what do they consist? Can the expression describe also a modern
monetary policy strategy?
4.
Exchange rate speculation tended to be stabilizing during the gold standard.
This was much less the
case during the interwar gold standard. Why?
5.
The rules of the game in the gold standard provided a solution to the
incompatible trio problem.
Explain and comment.
6.
a) The UK had a special role in the classical gold standard. In what sense?
b) The US had a special role in the Bretton Woods system. In what sense?
c) What was the case (in terms of currencies with a special role) in the interwar
gold standard?
7.
a) Germany had a special role in the European Monetary System. In what sense?
b) Considering also other cases of currencies with a special roles, comment on
the concept of (dejure and de-facto) symmetry in exchange rate regime.
8.
To what extent was the gold standard compatible with inflation? Was it a
guarantee of complete price
level stability at the global level? Could international inflation, during the gold
standard years, develop

rapidly, unexpectedly and very fast?

9.
a) Were the gold standard years or the years of classical central banking a period
of undisputed financial stability or of frequent dangers of bank crises?
b) How would central banks cope with banks liquidity crises? What do we mean by
Bagehot rules?

10.
Briefly comment on the idea that one can detect a bit of modern flavour in the
classical gold standard.

11.
The interwar gold standard was very different from the classical regime ended with the
first world war. In what sense? Comment, in particular, on the fact that it was multipolar and that the rules of the game were not obeyed.

12.
The Great Depression of the 30s has substantial connections with the dysfunctional
pseudo-gold-standard adopted in the interwar period. Explain.

13.
The Bretton Woods agreement :
a) aimed at something between fixed and flexible exchange rates: why and how?
b) did not succeed in obtaining the right degree of flexibility of exchange rates: in
what sense and why?
14.
Which was the solution to the incompatible trio problem in:
a)
b)
c)
d)

the
the
the
the

Bretton Woods plan

Bretton Woods reality in the 60s
very first period of the EMS
final part of the EMS

15.
a) What was the role of the IMF in the Bretton Woods agreement?

b) What is the main difference between the IMF and a (global) central bank?

16.
Different explanations of the end of Bretton Woods can be combined using the concept
of schizophrenia. Explain and comment.

17.
Explain the link between the oil shock and the exchange rate instability in the 70s.

18.
In principle a fixed exchange rate system does not require that participating countries
have low inflation. But the EMS was conceived as a way to combat inflation. Elaborate.

19.
List the main categories of the initial aims of the EMS and add a brief comment to
each of them.
20.
During the EMS years countries like France and Italy borrowed the credibility of the
Bundesbank. Explain why countries would want to borrow credibility and how via
which mechanism of incentives this happened in the EMS.

21.
What was the ECU? What was the main conceptual difference between the ECU and
the euro that came later?

22.
The EMS was not an agreement to limit fluctuations of the participating currencies
exchange rates with respect to the ECU. Explain and then comment on the
importance of this fact.

23.

a) The implicit leadership of the Deutsche Bundesbank helped to solve the

incompatible trio problem during one of the phases of EMS history. In what sense?
b) This help turned our later to be insufficient: why?

24.
What were the causes of the EMS crisis in 1992-3? How was the system able to
overcome the crisis?

25.
Aggregate supply shocks pose serious problems for aggregate demand stabilisation
policies. Why? Why these shocks, even when they hit many countries in a similar and
symmetric fashion, can have consequences for exchange rates?

26.
What do we mean by Triffins problem?

27.
An irresponsible US monetary policy caused the end of the Bretton Woods system.
Explain.

28.
(a) How would you characterise in no more than three lines the behaviour of the
exchange rate of the dollar during the Seventies?
(b) What happened, and why, to the dollar exchange rate during the first part of the
80s?

29.
(a) What do you know about the so called Plaza and Louvre Accords in the 80s?
(b) What has been the criterion to fix the dollar price of the newborn euro ?

30.
Briefly comment the following graph:

31.
Briefly comment the following graphs:

32.

During the post-2007 crisis the US dollar exchange rate has often a tendency to
become stronger when the situation looks worse, and viceversa. Do you have an
explanation for this? Is it absurd, given that the crisis started in the US and was
caused by the dysfunctions of the American financial sector? In particular: why the
dollar tends to weaken as risk aversion decreases?

33.
The theory of optimum currency areas makes use of the concepts of monetary
efficiency gains and economic stability losses. List some of such gains and losses,
and explain their relevance for the decision to adopt a single currency.
34.
The group of countries that adopted the euro in 1999 did not meet the criteria for an
optimum currency area.
Do you agree with the above statement? Does it matter whether the criteria were met
or not? Explain.
35.
Why does the frequency and the size of asymmetric, country-specific shocks is a
factor to be taken into account by nations considering the possibility of establishing a
currency union? Make an example of such shocks, comment on the challenges it
poses and discuss the policy responses available in a currency union.