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EC307 Essay Revision

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amarjotsidhu's version from 2017-05-24 05:33

Essay Revision

Question Answer
Decline in investment in election vs. non election yearsJulio and York (2005)
Pound performance after Brexitfell to its lowest levels since the 80s; since, it's been trading 15% lower to dollar and 2% lower than euro than pre-brexit
Euro growth vs. india1995-2007- average euro growth = 1.63% vs. India annual growth 2000-2016 = 7.3%
NEG ModelKrugman 1991
Continued importance of distance within gravity modelWu (2005) - looked at data 1990-2006
Lack of deep integration limits benefits of trade dealsSoegaard and Schroder (2017)
UK has to negotiate again with over 100 countriesCrafts, 2016
Benefits of leaving = 90% of UK businesses that don't export are no longer boundedHalligan and Lyons, 2017
56 regulations that costs > benefitsBooth et al. (2015)
Cost of 56 regulationsCrafts (2016) = 0.9% of uk GDP
areas of regulation of 56 regulations come from 2 key areas: working time directive and energy strategy Crafts, 2016
Increasing number of regulations coming from supranational organisations Halligan and Lyons 2017
The UK still had scope to adapt regulations while it was in the EUDhingra and Sampson, 2016
Free-rider problem of trying to become a low regulation hubSoegaard and Schroder, 2017
City of London important as investment banker for rest of europe Halligan and Lyons, 2017
Businesses trade across borders because it makes commercial sense, not because politicians sign trade dealsHalligan and Lyons 2017
The EU still has to abide by MFN rulesHalligan and Lyons, 2017
In terms of imposing trade costs, non tariff bariers most important than direct tariffsWincoop 2004
WTO has made less progress on reducing regulation vs. EU within single marketDhingra et al. 2012
Migration impacts existing stock of migrantsPetrongolo 2016
Migration helps aid growth and reduce budget deficitWandwsworth 2015
Migrants make net tax contribution and markets which have seen a greater influex haven't been damangedPetrongolo 2016
Household income less exceeds fiscal savingsDhingra et al. 2012
Total cost of contributions and bad regulations (1.4%) < positive contribution (8-10% of gdp)Crafts 2016
Less damage if UK operates in soft brexit rather than WTOPWC (2016) - trade 1% lower by 2030 vs. 5.5% lower
EFTA has not been as scuccesful in increasing trade as EUBaier et al. 2008
Deadline effect, patient effect and committment tacticMuthoo, 2017
Cost of UK firms having to set up subsidaries in EU and adhering to regulation thereMcMahon (2016)
memorize

History of Europe

 

Question Answer
Paris Treaty1951 - EU = supra-national organisation, established ECSC
Treaty of Rome1957 - creation of EEC (proposed decrease in tariffs, established commission, CAP proposed)
1970sEuropean regional policy begins to transfer funds
Maasricht Treaty1993 - creation of single market and establishes 4 freedom
Amsterdam Treaty1999 - more power to EP, more emphasis on European citizenship
Euro creation1999 (circulation begins in 2002)
Lisbon Treaty2009 - move to QMV in several policy areas, gave rights to states to leave EU
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What does the EU do?

 

Question Answer
Treaty of Romeestablishes customs union, sets out 4 freedoms, aims to regulation harmonisation
ERM1979 - semi-pegged currency
Maastricht treatyestablished monetary union, with comse countries getting opt outs
European council
The council of ministers
European commission
European parliament
European court of justice
Financing of EU budgetVAT receipts, tariffs, contributions, agricultural levies
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Labour markets and integration

 

Question Answer
Perfectly flexbile wages - employment levelsfull employment at every level
Inflexbile (downward sticky wages) - employment levelsunemployment
Perfect levels of centralised wage bargainingyou either want full centralisation of wage bargaining or none
Immobile labour, wage inflexibility and expanding sectorincrease in wages and inequality, unambiguous effect on employment
Immobile labour, wage inflexibility and declining sectorwages remain same but unemployment goes up
Reasons for low labour mobility in the EUhealth, pension, housing systems, profession restrictions, language
Docquier, Ozden and Peri(2010) - emigration increases in inequality and decreases average wage level while immigration has opposite and almost equal effect
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Costs of OCA

 

Question Answer
Necessary adjustment mechanisms in a monetary union against asymmetric shockslabour mobility, flexible wages, flexible prices, fiscal union, dynamic fiscal union, private financial integration
Adjustment mechanisms to asymmetric shocks with independent monetary policyusage of interest rates (which in turn influence exchange rates) ; depreciation in pegged system
Sources of asymmetrydemand shocks, different labour institutions, different levels of growth (and in turn inflation), different fiscal priorities, different preferences between unemployment and inflation
Do we need to worry about asymmetric shocks in integrated zone like Eurozone - yesNEG, visible agglomeration in EU, no fiscal union
Do we need to worry about asymmetric shocks in integrated zone like Eurozone - nocommission view; rose (increase in trade) ; artis and zhang (2005) - increased european inegration and business cycle integration across 80s and 90s;
Hard nosedpriority to inflation
Wet facedpriority to employment
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Benefits of OCA

 

Question Answer
Benefits of single currencylower transaction costs, elimination of exchange rate uncertainty, price transparency, financial stability, more growth
Price transparencyhasn't materialised - price divergence still exists
Lower transaction costsno currency exchange - estimated benefits = 0.25-0.5% of gdp
Financial stabilitybeneficial in a crisis for a small country - you now have access to a large CB but lose ability to devalue
Elimination of exchange rate uncertaintyfirms can benefit from such uncertainty, potentially making larger profits
More growtheliminates systemic risk, exchange rate risk = decline in r = more output (solow); but, acceleration in growth not witnessed - only periphery countries saw growth - does MU reduce systemic risk? If you are a small country who suffers from shocks in goods market, better for you to have flexible ER as they allow for adjustment and stability. If you suffer from money side shocks, better for you to be in MU
EvidenceRose (2005) - increase in trade; Nitsch and Pisu (2008) - trade went up by small amount as gains in trade accrue only for small, unproductive firms
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Benefits vs. Costs of an OCA

 

Question Answer
Monetarist vs Keynesianmonetarist has much lower threshold of trade as %of gdp for joining MU as they do not believe ER mechanism useful
LR integration in OCAover time, higher trade inegration may lead to higher symmetry levels
Endogeneity of MUyou join EMU, then you become OCA
Is EU 25 an OCA ?no - a lot of CEE countries have low levels of correlaiton with EU demand/supply shocks
Should UK join EU?lower levels of opennness to rest of EU, negative correlation to shocks, limited benefits of ellimination of ER uncertainty
Other OCA potentialsLA , East Asia
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Euro and financial markets

 

Question Answer
Euro integration across financial marketsgood in money markets, bond markets but low in banking (retail)
Bond market integrationgood across Euro. Post intro of Euro, LR yields converged (SR became same). After 2008, yields sepaated according to systemic risk
Domestic banking integraitondomestic regulators regulate branches abroad, national regulation remains + cultural differences = not a lot of cross border bank mergers and integration
Can Euro become international reserve currencyits importance has been increasing in reserves, big market size, price stability but still ong way behind dollar inertia
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Banking supervision and ECB

 

Question Answer
Anglo-French modeldependence and broader remit
German modelindependence and strict price stability remit
ECB vs. Fed Fed reacts more aggressively to changes in output, but similar levels of inflation across 2000s; ECB more independent but Fed more accountable
ECB governance structureGovernors of countries (19) + executive board (6) - make decisions together
Solving overrepresentaiton in ECBin plural voting, smaller countries had advantage. solution: put countries into 2 groups (big countries and lots small countries). Voting rights rotate within each group but more countries miss out on voting in group with lots of small countries (5 countries, 4 votes vs. 14 countries and 11 votes)
Regulation problemsnational regulation persistency + failure of bodies to share info
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Monetary policy in Euro

 

Question Answer
Asymmetric shocks before 2008high inflaiton, growth and output gap differentials = big differences in real interest rates and thus house prices
ECB approach to inflaiton targetingmoney growth + reference values e.g. wage growth
Price stabilisation focus in demand vs. supplyif demand shock, then policy will restore output vs. in supply shock, it will exacerbate impact
Trade off between price stability and inflationincrease in AS from technology development will be exacerbated by policies to restore price level and further increase boom
M3 growth 2005big expansion yet no correlaiton with CPI
Better inflation targeting strategyinflation targeting + targeting of money growth and asset prices
3 instruments in new inflation systemopen market, standing facilities and reserve ratios
memorize

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