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Warnock, Francis E.

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A Technical Note on the Open Economy IS/LM Model

This technical note introduces the basic structure of what we call the Three-Paned Model. The model is essentially just an "opening up" of the closed-economy IS/LM Model, with the main pane being the IS/LM Model (modified only slightly to allow for international trade) and two additional panes that determine the amount of capital inflows, net exports, and the exchange rate. This note is not a subs ...

A User's Guide to the BOP and IIP

This note presents a short description of the balance of payments (BOP) and international investment position (IIP) presentations. It refers to data for South Africa, but given that there are worldwide standards for countries that report both BOP and IIP, it should provide guidance for understanding the data of just about any country. ...

A User's Guide to the BOP and IIP: The (Incomplete) Transition from BPM5 to BPM6

Balance of payments (BOP) accounting conventions, never straightforward, have been complicated recently by the introduction of new standards. This note presents a short description of BOP and international investment position (IIP) data. It refers to data for the United States, Brazil, and South Africa, but given that there are worldwide standards for countries that report BOP and IIP, it should p ...

Bernanke's Dilemma

At what point in the tepid recovery from the global financial crisis should the Fed take a major step in normalizing U.S. monetary policy by greatly reducing its holdings of U.S. Treasury bonds? Federal Reserve Board Chairman Ben Bernanke faced this question in Spring 2013, even as he was concerned that the U.S. economy was still on a weak footing. Suitable for both core and elective MBA courses i ...

Currency Crisis in the United Kingdom and Hong Kong

This case reviews different varieties of currency crises and two in particular: United Kingdom in 1992 and Hong Kong in 1998. These were two very different types of crises, and understanding them could serve the protagonist well when future crises occurred. ...

Draghi's Commitment

In July 2013, ECB President Mario Draghi and eurozone debt markets dominated the protagonist's thoughts. After dramatic convergence in eurozone's long-term rates during the late 1990s, the "Great Convergence" had given way to the "Great Divergence," in which German yields reached a record low of 1.22% in summer 2012 while Greek yields were bouncing between 20% and 40%. Periphery bond markets impro ...

Euro Zone Convergence, Divergence...and Then What?

A hedge-fund strategist had two decisions to make. First, what was the path of core euro zone long-term interest rates likely to be over the next year? Was the dramatic decline in German long rates over the past few years an aberration that would soon be reversed, or was it part of the "new normal" that would persist for some time? Second, how would periphery long rates evolve relative to core rat ...

Eurozone at 15: A Monetary Union Without Growth?

In 2015, the eurozone had been in and out of recession for seven years and had slipped into deflation. This case presents a brief history of the eurozone and allows students to consider the growth prospects for the union. Is the eurozone damned to a decade of economic contraction? Or is the worst behind it? ...

Exchange Rate Models

This technical note describes parity conditions (PPP, UIP, and CIP) and develops a model of exchange rate determination. ...

FX Strategies in 2005: U.S. Dollar versus Euro

Riding the early morning Metro North train from Grand Central to Greenwich in late December 2004, the euro dominated Luke Anthony's thoughts. After bottoming out at about 0.85 $/?, in 2000 and 2001, the euro had appreciated sharply and now stood at 1.35 $/? (Exhibit 1). Luke, an FX Strategist at a hedge fund, had to form a view about the likely path of the euro going forward. The evidence was in n ...

FX Strategies in 2006: U.S. Dollar versus Yen

Riding the early morning Metro North train from Grand Central to Greenwich on April Fool's Day 2006, Luke Anthony briefly pondered the revitalization of some of the once grand Harlem neighborhoods. But then his thoughts turned back to the task at hand: to form a cohesive view of the likely path of the Japanese yen. Was the dollar on one of its patented upward swings that would bring it to 140 ?/$ ...

Geithner and Bernanke Amid the Global Financial Crisis

In mid-February 2009, amid the global financial crisis, the news was grim. The U.S. economy had been in recession since December 2007. If the downturn lasted into early spring, it would become America's longest postwar recession. The economy had shed 3.5 million jobs over the previous 12 months, the worst 12-month period on record. Bank lending was plummeting; the few banks with funds available we ...
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