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Updated on July 28, 2016


Forex is an abbreviation used for "exchange" or "currency exchange" and often used to describe the trade in the currency market by investors and speculators. For example, imagine a situation in which it is expected that the value of a dollar will weaken against the euro. Forex trader in this case is to sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars to increase. The trader now can buy back more dollars than they had to start making a profit.

It's like stocks. A stock broker to buy stocks if you think the price will rise in the future and sell shares if you think the price will drop in the future. In the same way forex trader will buy a currency pair if you expect the exchange rate to increase in the future and sell a currency pair if you expect the exchange rate to fall in the future.

The European crisis
The collapse of the European debt triggered a series of events in the banking sector in us.When The slowdown in the US economic system prevents many Americans to pay their mortgages owners, banks around the world began to lose money mortgages hadassociated . Lehman Brothers, the fourth financial institution within the nation largestfunding, sinking under the burden of bad investment, several banks and traders made fearful risk operations. Concern that could break additional banks were buyers and bankers to take excessiveprecautions. Banks stopped lending money to each other, to be in critical difficulties whichrelied loans. European banks were closely within the US mortgage market suffered a blow. To keep away from some traded banks, many governments support nationsgot here: Germany, France, UK, Ireland, Denmark, the Netherlands and Belgium. But the ransom price had to be very excessive. In Ireland, almost itbrought dropped the federal government until the intervention of international financial support various areas of the EU. In 2009, when Europe went into recession, the question began to develop governments initially affected banking, as markets feared that some countries do not use rescue troubled banks. Investors began to look more closely at state funds. Greece was particularconsideration advantage for the financial system was very weak state and government gathered after representing almost double the scale of the money owed economic system. The threat of chapter of banks means that the interest of public funds extravital than ever. government, which turned out to be accustomed to giantquantities loan financing annually to the budget and therefore had accumulated due to the large amounts of money, suddenly they found the market much less prepared for the loan. what began as a banking disaster succeeded disaster sovereign

Peru considers that the EUDE MBA as one of the most recognized at European level?
Tthe MBA is taught at the School of Business EUDE is considered one of the five most recognized worldwide by experts in management techniques in Peru. There are many reasons why a person can make the decision to do an MBA, however, the greatest effort of MBA to be an expert in talent management games. Today companies are looking for people who possess the study because they believe it is important to have good management talent show their true leadership organization for success. But times change, so must the future directors and senior executives, such as renewal of information, because as many experts agree that the results are not strategic, but also for people to address match. In Peru, it is one of the most recognized at European level EUDE Business School MBA. As experts in the field to offer discussed between cases and practices that lead to prepare students to excel in high competition marked by the business world techniques.


Notes from the Margins of the IMF Spring Meetings

Each year, within the framework of the Spring Meetings of the Bank IMF / World is a selection of conferences and seminars organized by international financial institutions, think tanks and other entities. This year is no different. CIGI co-sponsored an event along with a number of other research centers Brookings last week. The discussions were both informative and, from my point of view, somewhat daunting.

It seemed to be a consensus that prospects for the world economy, the IMF chief economist described as "too slow for too long", which are not very bright. It is true that the situation in the United States is reasonably good, with employment up. However, there is concern that a negative shock could have a very adverse effect if monetary policy is already "maxed", despite (and its predecessors) warrants, Janet Yellen, the Fed can do more. Needless to say, the situation elsewhere is considerably less encouraging. The euro area remains beset by existential problems that only increase with time. China's growth is falling, as the Solow-Swan model would predict. New concerns have arisen about the long-term fiscal sustainability of Japan. And the dual political and economic crisis in Brazil are hurting growth prospects in Latin America.

There is broad consensus that the global economy should go, but less agreement on how to get there. I remember the old story of the American tourist in Dublin asking for directions. "Well," he says, "if I went there, I would not start from here."

The answer, I believe, is clear: investment in infrastructure, which in many advanced economies has been ignored and is required in emerging markets so they can continue their path to development.
The point is that the initial conditions are important; Unfortunately, we have a particularly favorable set of initial conditions. One can imagine a situation in which a continuing failure to move the global economy of full employment results in a constant fraying of the social fabric, political dysfunction and increasing debt burdens as deferred relatively small "fixed" and the effects of kick demographics. Fortunately, it is also possible to imagine an alternative scenario in which politicians exploit thistle and act decisively.

What are these measures? The answer, I believe, is clear: investment in infrastructure, which in many advanced economies has been ignored and is required in emerging markets so they can continue their path to development. Moreover, as I noted earlier, these investments could help restore interest rates to more "normal" levels, and rebalancing global demand and start unwinding some of the pathologies of the crisis. In the present circumstances, however, governments are reluctant to undertake stimulus, although the productive capacity of the economy rises. It will be the coordination of policies of a type that has been out of fashion.

Undoubtedly, there was a remarkable degree of cooperation after the bankruptcy of Lehman Brothers, which culminated with the commitment of the G20 to inject liquidity to prevent a global financial meltdown, provide an equivalent fiscal stimulus to 2 percent of GDP, resist protectionism. These measures refuted Hegel and avoid the mistakes of the 1930s, however, this remarkable response reflects the simple fact that the interests of all were perfectly aligned: There would have been no benefit to allow the global economy to collapse. Moreover, timely and appropriate response from the G-20 do not prevent another mistake - that is, misdiagnosing how difficult it would be to return to full employment. As a result, the fiscal stimulus was replaced too quickly for fiscal austerity, leaving monetary policy as the only instrument in the game. This has led to our current malaise.

The argument in favor of the coordination - or, as some insist on cooperation - is both simple and robust. In the present circumstances, obviously, governments prefer to be on full employment, but are afraid of the tax consequences of higher debt loads. They worry that the effects of unilateral fiscal stimulus will dissipate by the appreciation of the exchange rate with other benefits. If others stimulate, however, they will enjoy the spread without increasing debt burden. Of course, all thinking along the same lines, is a recipe for inaction. As a result, everyone is worse than a scenario in which all stimulate. Effective coordination (cooperation), resulting in a coordinated fiscal expansion could generate a Pareto improvement in some (and possibly all) are better or worse.

The point is that this successful outcome requires agreement on the "model", and I mean a common understanding of the nature of the problem and the effects of policy decisions. There is no such consensus. While some see a window of opportunity to increase growth (and reduce the debt burden by growing the denominator), while others see dangers in appeasement with more fiscal expansion. That is why investment in infrastructure is so critical, as Amar Bhattacharya and his colleagues have argued, and why efforts to enhance the participation of multilateral development banks to mobilize savings from advanced countries would be so beneficial.

Geopolitics of growth, and the saddest words of international finance

In December, David Welch had an excellent post here in recent Chinese actions in the South China Sea and its possible consequences for safety. What might seem aggressive intentions, he says, can, in fact, be the product of insecurity.

The Beijing regime's legitimacy depends on its ability to deliver the goods - in fact, ensuring the "American dream" that each generation has more opportunities for consumption than the generation that preceded it. However, as the forces of convergence kick, and growth slows down, this may be more difficult to achieve.

Optimists point out that the remarkable growth achieved in the last quarter century means that slower growth in this huge base still means a great start. This observation is certainly correct. However, per capita GDP in China remains low despite the impressive progress that has been made over the past two decades. And, if the relevant metric is how the current generation rates compared to previous generations, growth remains practically a prerequisite.

As argued in a previous post, it may be the case that the authorities are relatively optimistic about all this. If there is a replacement of the highest capital-vintage technology labor, per capita GDP could then continue to rise. This is the optimistic scenario. a flowering of technological innovation and adoption is required. A key question is whether the institutions that represent what Brad DeLong Berkley referred to as the "secret ingredient" of development - contract enforcement, property rights, rule of law - develop, or even if they are really necessary. If not (developed) and are (essential) it expects growth of GDP per capita can be difficult to achieve.

In such circumstances, the regime could "change channels" on its legitimacy from delivering the goods to the manifestations of superpower status?

. "Possibly" If the answer to that question is should pay attention to Brad DeLong, exploitation:

... There is nothing more dangerous for the future security and nothing more destructive to the future prosperity of the United States for Chinese schoolchildren are taught in 2047 and 2071 and 2075 the United States tried to keep the Chinese as poor as possible during as long as possible US citizenship. There is little more dangerous for NATO powers a Chinese elite whose values ​​and interests are not fully in line with those of America. And there is nothing more conducive to align the interests of China and its elite with NATO powers of a China that is (a) getting richer, (b) increasingly fascinated by economic success and cultural civilization North Atlantic, (c) treated with respect and (d) incentivized to fight for victory in negative-sum power nonmilitary, but international relations of economic and technological positive-sum games.

The best way to align the interests?

The starting point is to ensure that the international financial structure creates the right incentives for continued cooperation in promoting open markets and the kind of orderly change and balance of payments adjustment. The addition of currency renminbi (RMB) made to the International Monetary Fund Special Drawing Right (SDR), while largely symbolic, is an example. Unfortunately, the timing was not particularly auspicious. The financial turmoil that has shaken global investors since the beginning of the year springs from many sources, as John Authers noted in the Financial Times, one of which is the concern about a possible disorderly adjustment of the RMB. The sharp decline in foreign currency reserves held by the Bank of China (PBOC) in recent months reflects a confluence of factors, including the shading of the RMB against the US dollar, which has appreciated significantly in recent 18 months or more, the continued weakness the euro zone and the partial liberalization of capital flows. In this environment, the imposition of countervailing tariffs on Chinese exports, as some seeking the Republican presidential nomination have proposed, would be both bad economics and bad politics (GEO).

Recently, both Barry Eichengreen and Ken Rogoff have argued that China will have to adjust its exchange rate policy. They point out that this would have been better to do it from a position of strength, when the problem was excessive reserve accumulation, but that's water under the bridge. In any case, the IMF can play an important role in providing a certification function outside the control of change, when it comes, it is consistent with the commitments members make to avoid efforts to manipulate exchange rates of an advantage competitive on others.

At the same time, it would be naive to think that international institutions are not without broader goals: they are, after all, creatures of sovereign states that have interests to protect and advance. In this sense, the challenge will be to accommodate the legitimate aspirations of China, the voice commensurate with its growing economic importance. This inevitably requires a certain decline of American influence.

Although it is difficult to sell in the current political environment in the United States, there are clear risks of not recognizing the new realities in the global power structures. Writing economic cataclysm that hit the world economy in the 1930s, the late Charles Kindleberger wrote what he believes are the saddest words of international finance "in 1929, the Bank of England could not and the Fed [provide well public international financial stability] "the Bank of England" could not "because the financial burdens of the Great War had exhausted its financial resources.; the Fed "no" because as increasing the institution was reluctant to assume the responsibilities of intervention abroad. The costs of this failure were enormous, as the fraying of the social fabric and economic turmoil led to political polarization and eventually world war.

However, if the international economic and financial cooperation paves the way for growth and development, could also eliminate threats to geopolitical security

Thinking about Equilibrium, Institutions and Governance

The idea is that small changes will lead to small changes in the economy and the principles of natural philosophy. And yet, there are many cases in economic variables blown balance to another. The financial crisis, for example, involves large and discontinuous changes in variables "flow" - investment and production - while the variables of the "state" describes the basic, such as capital economy has changed little. The problem is that although the economy of physical capital is the same as before the crisis, resulting in unemployment due to the crisis with a clear loss of interest in line with Natura non facit Saltum.

As Joe Stiglitz argued [1], a number of explanations for the observed dynamics. For example, you might map the state variables of multiple equilibria of a result. Moreover, expectations can be a state variable and subject to revision and suddenly suddenly. Another possibility is that there may be multiple equilibria come to balance long term one, with the economy focusing on certain fixed position, depending on the initial conditions. Small perturbations in initial conditions can lead to several long-term stable state. You can inertia and hysteresis effects also play an important role: if people do not immediately and continuously adjust the behavior due to adjustment costs, so the behavior only adjusted when the divergence between the value grows variable flow optimal without much major adjustment costs, major changes could be discrete flow variables.

All explanations in line with reasonable expectations. The challenge of economic theory to explain which of the equilibria elected by the economy. The methodology of rational expectations before but excludes only forms of stable equilibrium is an approach, but is quite unsatisfactory because it is equivalent to the imposition of a course of equilibrium. It is also possible, for instance, that unreasonable expectations or transport markets 'grazing'. At the same time, the duration of the finite individual, they can not see infinitely far in the future or the impact on the potential of each state in the world, regardless of their insight, subject to "limited" rationality and, therefore, a priori roads exclusion are ultimately unsustainable.

But while people live is a generic definition finite, institutions, or can, infinite life; The institutions are working well, in light of expectations incomplete, asymmetrical anchor and help the economy "collect" information stable route. That is, the institutions existing endogenously the most effective in the world of our resources stable version and allocation, unlike the expectations forecast perfect life / rational in much of the economic modeling of the last quarter century on the roads excluded a priori unstable. Can 'shoving' as soft as central bank governor in the center implies acceptance investors seriously the possibility that oil stocks have lost value chain and if the action that successfully meet the challenge of climate change.

Of course, not all institutions are well designed or equally effective. In this regard, as discussed elsewhere, provided that the basic design flaws with anemic growth and episodic nature of the debt crisis in the euro zone from the global financial crisis. While the architects of monetary union euro considered the starting point for a wide range of structural reforms that would change disparate collection of countries in the area of ​​optimal currency convergence of nominal amounts - illustrated by the rapid convergence of the nominal interest rates edge member sovereign debt levels in Germany - was taken as the end point of the process. Moreover, the incomplete architecture of the eurozone has fostered uncertainty and potential instability, rather than the expectations set on a path in line with the "good" equilibrium.

With strong institutions of international cooperation and to confirm expectations policy decisions guide, can the world economy remains positive sum game.
While the success of the ECB to stabilize financial markets with the commitment of Mario Draghi to "do whatever it takes" to preserve the euro, growth in the euro area remained uneven and members are kept with high proportions of debt GDP vulnerable to sudden - changes in the expectations of the burden of sustainable and low interest rates for fear debt burden of unsustainable debt and high interest rates to the perceived risk of default. The situation is fragile and some shock - the prospect 'Brexit "for example -. It could lead to a renewed bout of volatility Meanwhile, recent data show that deflation continues to haunt Europe.

Beyond the continuing difficulties euro area, has in recent months highlighted several challenges to the international community: the slowing growth in China and uncertainty about the renminbi, the spread of negative interest rates, and the threat selfishness national currency depreciation whichBank England, Mark Carney, warned at the meeting of G-20 in Shanghai. But there is also the opportunity: The success of the Paris meeting on Climate Change in December hopes that significant progress can be achieved.

Thinking of balance, and government institutions, it seems clear that the significant progress made in reducing poverty according billion people - three-quarters of them in China - came from extreme poverty, was made possible by institutions band together form the government.

Long before institutions to facilitate the orderly reconstruction and reintegration of Germany and Japan in the international community, avoiding the mistakes of Versailles. Meanwhile, agreements have facilitated the gradual reduction of tariff barriers and orderly promote the efficient allocation of resources and market access of newly industrialized countries.

More importantly, however, change the way the institutions of individual Member States saw the global economy. In the stagnation of the 1930s, countries saw international trade as a source of job destruction diversion of demand for imports effectively "leaking". This resulted in the devaluation policies impoverish neighbor competitive exchange rate, tariffs and non-tariff barriers and growing regionalism, monetary areas, such as the system of imperial preference in the distinguished members of the British Empire and Commonwealth. In the post-war period, he came to think of the world economy as a zero-sum game by the understanding that the world economy be a positive-sum game, with clear rules and institutions that provide solid benefits for all.

Very happy, fragile at best, the result is today under the pressure of adjustment problems in the global economy and the need for broad support for governance arrangements between heterogeneous group of countries to preserve. With strong institutions of international cooperation and to confirm expectations policy decisions guide, can the world economy remains positive sum game. This objective requires ensuring that international institutions as effectively as can be; effective as they face the challenges of the failure of the 21st century to meet the challenge that could mean another jump to balance, perhaps back to the zero-sum game of the view that global economy and break regional economy or global based on the currency in which trade and financial support to other areas of friction areas contagion.

patologías de crisis: las tasas de interés negativas, o más lecciones de la década de 1930 para la década de 2010

Kevin Carmichael traffic already on the announcement of the Bank of Japan (BOJ) go today with the European Central Bank (ECB), the Swiss National Bank and the central banks of Denmark and Sweden being charged interest rate negatively on bank reserves commercial. (The Bank of Japan will not apply the negative rate of bookings, new deposits.) Martin Sandbu is interesting perspective on the decision by the Bank of Japan here. Japan in addition to the ranks of countries with negative rates now and nearly a quarter of the world economy. What's going on here?

avid readers of Paul Krugman Blog know that answer to imagine the possibility that the full employment levels of savings and investment balance but negative real interest rates. This is illustrated in the diagram below, showing the intersection of the slope up saving function S (YF, e) that shows how the level of full employment savings to meet the tracks real rate of interest, r, and the investment performance down, I (e). Few theory here. In fact, savings and investment schedules decidedly simple representation [1] However, help illustrate a situation where "clears" the real interest rate is the market for loanable funds negative, so R0 .:

Now, before the crisis, Ben Bernanke, (then chairman of the Federal Reserve Board) warned that the world economy was suffering from "global savings glut". In part, this may be more the result of expression "forced" savings of Chinese citizens, for example, large current account surpluses and foreign exchange accumulation. Absent further argument saving, the saving function S (FA) to be closer to the vertical axis, to cut the investment function at a positive rate of interest. Alternatively, it could be said that the investment is too low, perhaps due to lack of innovation. (Robert Gordon could not be right? Or is it consistent with the fear secular stagnation Larry Summers?) With investment opportunities curve shifts more investment to the right, resulting in a higher speed balance. some positive real interest to scoff that this approach is too simplistic; Reality is more complex. They can also be right. But the point is that the classic model, as Keynesian economists agreed on a rule a priori choice.

Clearly thought experiment about the parsimony (and realistic) model. Complication model objective is to strip to allow an informed estimate, and above all, the replica. For now, it may be useful to think of the pathologies that could result if we relax the assumption of full employment in the situation described in the table above. To achieve full employment, we should have a real negative rates. With nominal interest rates already very low expectations of inflation and the downward trend, again, however, becomes the zero lower nominal interest rates binding limit. Recalling that the real interest rate is the nominal rate minus the expected inflation rate:

r = i-pe,

where i is the nominal rate and inflation is expected to pe, we would have a real problem if deflation takes its ugly head. Why? As deflation negative inflation, real interest rates move higher, lower. And if the output is already below full employment level (as adopted), deflationary pressures continue to increase. But new deflation could make the economy more full employment equilibrium, causing higher real interest rates.

The story, I think, leading to some, like Joe Stiglitz argue that the world suffered from a general lack of investment for any reason (Keynes animal spirits, perhaps? Or my value and choice generalized uncertainty waiting explanation favorite with companies reluctant to invest and fear for the future homes of the stop, is for consumption). The policy recommendation in such circumstances is clear: governments should take the opportunity provided by low interest rates for investments necessary to deal with aging population, infrastructure, ease congestion on key transport methods, what more productive economy, and tackling climate change.

Whatever the explanation, the fact is that the pathologies of the crisis is the legacy of the Great Recession, or "slight depression", as he prefers Bard DeLong, continue to cloud the outlook for the global economy in the new era of uncertainty .

[1] For simplicity, start with the economy closed national identity income Y = C + I + G, where denotes Y output (GDP), C is consumption, is that investment and government purchases G. reorganization investment is to isolate and to add and subtract taxes, you get T = S (YF - T - C) + (T - G) = I. this figure is based on the total savings, S, as the sum of private savings, defined the full employment level of output less taxes (= disposable income) less consumption (YF - T - C) savings, as well as the government, or less government spending income (TG). The investment curve, meanwhile, represents the discounted future cash flows from the investment, can be derived as described in the previous post: large-scale asset purchases, Internal Rate of Return Keynes and the new era of uncertainty


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