IER

Money vs. Finance

Money is a unit of account, medium of exchange, and store of value. Finance transfers savings over time via loans, bonds, and investments.

Policy Diffusion

The spread of similar economic policies across countries through institutional influence or market expectations.

Convergence Criteria (Eurozone)

Rules to adopt the euro: low inflation, low deficits and debt, stable exchange rates, and aligned interest rates.

Eurozone vs. EMU

Eurozone = countries using the euro. EMU = broader coordination of economic and monetary policy.

Why Inflation Helps the US

Moderate inflation reduces debt burden, boosts demand, and encourages investment.

Eurozone Crisis vs. Euro Crisis

Eurozone crisis = broad governance failure. Euro crisis = flaws in managing the euro currency.

ECOFIN vs. ECB Responsibility

ECB controls monetary policy; ECOFIN oversees fiscal policy. Crisis blurred responsibilities.

EU Fiscal Union Debate

Pros: shared stability. Cons: loss of national control and political tensions.

3 Is (International Regulatory Bodies)

Agents must respect Independence, Impartiality, and Integrity of global financial institutions.

IMF Austerity Approach

Loans require budget cuts and reforms. Critics say it harms growth and social safety.

Washington Consensus

10 pro-market reforms: fiscal discipline, liberalization, privatization, deregulation, and property rights.

IMF Creditors

US, EU, and Japan dominate voting and influence lending conditions.

Banking vs. Currency Crisis

Banking = banks can’t pay. Currency = fixed rate collapses. Often occur together.

Macro vs. Micro Mismanagement

Macro = inflation, deficits. Micro = corruption, inefficiency at firm/institution level.

Liabilities vs. Assets

Liabilities = obligations. Assets = what’s owned. Balance is key for stability.

Assets > Liabilities

If liabilities exceed assets, the institution is insolvent and at risk of collapse.

Intermediation

Banks turn deposits (liabilities) into loans (assets) to fund the economy.

Current Account

Trade in goods/services, income, and transfers. Measures a country’s trade balance.

Capital Account

Includes capital transfers and sales of non-produced assets like patents. Usually small.

Financial Account

Tracks FDI, portfolio flows, and reserves. Shows how trade is financed.

Foreign Central Banks (FCBs)

Manage reserves and stabilize exchange rates through intervention.

Fixed Exchange Rate Risk

Fixed rates can collapse when confidence fails, as in Mexico or Argentina.

Geithner vs. Hu Jintao

Geithner = liberal capitalism. Hu = state-led capitalism with SOEs.

Credit Rating

Assesses a country’s risk of default. Affects interest rates and market access.

BoP vs. Current Account

BoP includes trade, investment, and reserves. Current account is just one part.

Post-1973 Debt Effects

Oil shocks led to borrowing booms, IMF bailouts, and austerity in developing countries.

US Borrowing Privilege

Global demand for dollars lets the US borrow more easily and cheaply.

Race to the Bottom

Countries lower taxes and standards to attract investment—hurts regulation and labor.

Spillover Effects

Economic decisions in one country impact others through trade or capital flows.

Non-Tariff Barriers

Quotas, regulations, and standards that restrict imports without using tariffs.

Transition vs. Transformation

Transition = shift to a market. Transformation = deep institutional and societal change.

Private Property & Competition

Core to capitalism. They protect investment and promote innovation.

Poland 2008

Avoided recession with strong demand, flexible currency, and cautious banks.

IMF in Latin America

Reforms pushed austerity and privatization, often worsening inequality.

Why Uneven Development?

Due to history, geography, institutions, and financial systems.

Culture and Institutions in Development

Strong institutions and cultural trust in rules are key for sustainable economic growth.