International Political Economy (POL11000) at TU München

Flashcards and summaries for International Political Economy (POL11000) at the TU München

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Study with flashcards and summaries for the course International Political Economy (POL11000) at the TU München

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

resolution of Bretton Woods dilemma

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Why do governments choose monetary policy autonomy over exchange rate stability? 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

The Partisan Model 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Keynesian revolution

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Why has monetary policy become a viable policy goal? 

(role of ideas)

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

society-centered approach to governments monetary and exchange rate policies 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Governments can manage aggregate demand to lower unemployment 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

 The Electoral Model 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Treaty of Maastricht 1992 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

European Monetary Union 

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

Unholy Trinity after end of Bretton Woods

Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

The Bretton Woods System 

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Exemplary flashcards for International Political Economy (POL11000) at the TU München on StudySmarter:

International Political Economy (POL11000)

resolution of Bretton Woods dilemma

trust eroded and in 1971 Germany floated the DM and Nixon suspended the convertibility of USD into gold 

International Political Economy (POL11000)

Why do governments choose monetary policy autonomy over exchange rate stability? 

1. electoral model (franchise extension and political business cycles) 

2. partisan model (philips curve)

3. sectoral model (frieden 1991) 

International Political Economy (POL11000)

The Partisan Model 

Philips curve: trade-off between unemployment and inflation (in short-term)

argument: 

– different parties pursue different policy goals 

– parties pursue policy goals in line with their core constituency 

– assume pocketbook voting – people vote for the better deal 

left: low unemployment at expense of exchange rate stability 

right: low inflation, allow fixing exchange rates 

International Political Economy (POL11000)

Keynesian revolution

starting observation: economies can get stuck at high levels of unemployment

reason: investment decisions by firms are fragile > market imperfection regarding the aggregate demand for goods 

International Political Economy (POL11000)

Why has monetary policy become a viable policy goal? 

(role of ideas)

neoclassical economics – 

long-term unemployment not possible > labor markets adjust via changes in wages 

International Political Economy (POL11000)

society-centered approach to governments monetary and exchange rate policies 

politicians responses to interest group demands 

– material interests: winners and losers 

– idea: new ways of economic thinking 

political institutions 

International Political Economy (POL11000)

Governments can manage aggregate demand to lower unemployment 

direct fiscal policy: government raises demand for goods through expenditures 

indirect monetary policy: increase money supply > lower interest rates > lower costs of investing > more aggregate demand > lower unemployment 

International Political Economy (POL11000)

 The Electoral Model 

– franchise extension (more people have the right to vote) 

>working class more concerned about unemployment than inflation 

political business cycle 

-monetary policy as means to manage the economy (esp before elections) > belief that good economic conditions increase probability of reelection

> esp powerful if veto players make implementing fiscal policy difficult 

International Political Economy (POL11000)

Treaty of Maastricht 1992 

intro of Euro

creation of Euro Central Bank 

macroeco guidelines 

-price stability

-soundness of public finances 

-fixed exchange rates 

-convergence of interest rates 

International Political Economy (POL11000)

European Monetary Union 

European Economic Area becomes stronger – intra-euro trade create incentive for fixed exchange rates

International Political Economy (POL11000)

Unholy Trinity after end of Bretton Woods

free movement of capital 

autonomy of monetary policy 

International Political Economy (POL11000)

The Bretton Woods System 

system that enables currency stability and monetary policy autonomy

– US dollar as anchor currency, itself fixed to gold 

> facilitates exchange rate stability and trade 

– some flexibility and capital exchange controls 

> makes monetary possible to some extent 

creation of IMF and world bank 

> monitoring of exchange rate decisions and balance of payments financing 

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