A Case for Independence: Stanley Fischer on the Asian Crisis

Read Stanley Fischer's article: "Central Banking: The Challenges Ahead."
a. According to Fischer, why might there be a short-run inflationary bias under a politically controlled macroeconomic policy?
b. What does the empirical evidence suggest about the relationship between central bank independence and inflation rates?
c. Use AD and IA curves to illustrate Fischer's argument that there is no conflict between the goals of maintaining full-employment and price stability when demand shocks occur.
d. Use AD and IA curves to illustrate the conflict between full-employment and price stability goals when supply shocks occur.
e. Why does Fischer advocate the use of an inflation target for a central bank?

A Common Monetary Policy for the EC

Read the European Parliament's document entitled: "The European System of Central Banks" and the European Community's discussion of The Stability and Growth Pact." (Viewing these documents requires the Adobe Acrobat reader plugin. Explain why monetary policies must be coordinated for a common currency to exist.
a. Discuss the structure of the Central Bank System during Stage II of the transition to the Euro.
b. How will monetary policy be conducted under the "single monetary policy?"
c. Why is there a need to limit the size of government deficits?
d. Why might there be a need for sanctions?

Paul Romer's Views on Macroeconomic Policy

Read Paul M. Romer's article entitled: "Beyond Classical and Keynesian Macroeconomic Policy."
a. Explain Romer's analogy between monetary policy and blood doping.
b. Explain Romer's analogy between fiscal policy and a taper.
c. What does Romer suggest as the appropriate role for governmental economic policy? Explain.

OANDA.com

Review the real-time foreign exchange "Currency Trends" information on major currency-pairs (U.S. dollar & Euro, U.S. dollar & Japanese yen, and Euro & Swiss franc). Scroll down the page and survey the current FXNews.

• Assess how much the U.S. dollar has appreciated or depreciated against the Euro and Japanese yen over the past year.
• Explain how volatile exchange rates may negatively affect global trade and multinational businesses.
• Review the service offered by e-gold.com. Explain why investors may be interested in holding "e-gold" in their investment portfolio.