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• International monetary policy spillovers, how they occur, their size, and their stabilizing or destabilizing effects on the global economy are all discussed
• Monetary policy spillovers refer to how one country's economic management affects other countries.
• These actions are managed by a country's central bank.

How Monetary Policy Impacts Other Economies

• Exchange Rates: Easing monetary policy makes borrowing cheaper and devalues the currency, which boosts the economy by making products cheaper for other countries, but hurts other countries' sales.
• Demand for Goods: Economic boosts increase demand, including for foreign goods, which helps those economies.
• Financial Conditions: Cheaper borrowing leads to capital flow to other countries, boosting investment and spending there.

Good vs. Bad Spillovers

• These spillovers can assist countries struggling together
• These spillovers can worsen situations if one country is struggling while another thrives.
• Countries counteract spillovers using their own monetary policies.

Important points

• The United States has positive spillover effects on other countries when it changes its monetary policy; helping the U.S. economy will likely help other economies too.
• One country's monetary policy impact on others might not be large.
• Other factors, not just monetary policy, affect a country's economy.
• Central banks may have differing objectives, such as promoting exports or maintaining financial stability, which may challenge domestic output and inflation stabilization

Bailouts and Ball-ins

• Bailout: A country gets financial support from outside, like a rescue loan from the International Monetary Fund (IMF)
• Bail-in: When a country asks its investors and lenders to take a loss to resolve the crisis

Experience with Bailouts and Bail-ins

• The right tools is dependent on the specific crisis.
• Successful bailouts correlate with fast loan repayment, often in countries with low debt and policy adjustments.
• Successful bail-ins need convincing private creditors to contribute without causing more economic harm.
• Bonds can be restructured in different situations
• Voluntary participation isn't always preferable, as creditors might leave or demand high premiums.
• Official sector has an important role in debt restructuring

How Official Financing Works

• The IMF has different lending options for countries in trouble.
• The IMF decides how big a loan should be based on a country's financial contribution to the IMF (quota).
• Borrowing a lot more than its quota is exceptional.
• Large loans stop money from rapidly leaving and encourage investors to return, allowing quick IMF repayment
• Countries might not use all committed funds, or declare bankruptcy.

"Catalytic Lending

• A big loan will stop a financial panic
• Success means the country repays the IMF quickly, and private investors stop withdrawing their money.
• Mexico, Korea, and Brazil (in 1999) used this approach reasonably well.

When things don't go as planned

• Big loans don't always lead to quick repayments
• This can occur if private investors keep withdrawing money or the country's problems are deeper than initially thought.
• Thailand and Indonesia had long-lasting financial problems.
• In Argentina, even a large loan couldn't prevent a financial crisis and default.
• Turkey could not quickly repay the IMF.

Bail-in policies

• It's hard to measure private investor contributions because their commitments aren't always clear.
• Some investors might offer help only when the crisis gets really bad.

Ways To Involve Private Creditors

• Rollover Agreements: Creditors agree to extend their loans' terms.
• Debt Exchanges: Bondholders swap their bonds for new ones with different terms.

Important Considerations

• The IMF can serve in various roles.
• The IMF can offer some funds and allow the country to figure out how to raise the remaining amount.
• The IMF can link its loans to debt management performance.
• The IMF can link its loans to debt restructuring if the country's debt is unsustainable.
• Distinguish between truly voluntary agreements and those where creditors are pressured.
• Restructuring domestic debt (owed to residents) differs from restructuring external debt (owed to foreigners).
• Market value changes of investments don't count as contributions to crisis resolution.

Lessons For Handling Financial Crises

• Large-scale financing works best when debt levels are low and the country is committed to making changes.
• Large loans to countries with high debt levels are unlikely to be repaid quickly.
• The official sector helps private creditors coordinate effectively.
• The official sector needs to support rollover arrangements and overall restructuring.

Bond Restructuring

• Collective action clauses (rules that allow a majority of bondholders to agree on restructuring terms) help, but aren't essential. Multi-instrument exchange offers (offering different options for different types of bonds) are a key way to coordinate bond restructuring.
• Restructuring terms haven't always ensured long-term financial stability.

Restructuring Bank Claims.

• Sharp declines in international bank lending can strain a country's reserves
• A rollover agreement doesn't prevent banks from reducing their overall exposure.

Overall Lessons

• Private creditors have been more involved in resolving recent crises than many people realize.
• There's no single way to involve private creditors in financial crises.
• Start with official financing and policy adjustments before more forceful measures.

Mexico

• Mexico recovered quickly from its 1995 financial crisis with a large rescue package.
• Mexico is an example of a successful bailout, where the country could repay its loans quickly.
• The United States and the IMF provided enough money to allow Mexico to pay off its short-term debts.
• After three years, Mexico had almost completely repaid its rescue loan, and its stock of outstanding bonds had increased.

Korea

• Korea recovered reasonably well from its financial crisis.
• Korea is another example of a successful bailout, although it needed to reschedule is interbank debts to gain time.
• The official sector played an active role in putting Korea's rollover arrangement in place.
• The alternative to a rollover for Korea was a default.

Brazil

• Brazil faced crises in both 1998-99 and 2001-02.
• Brazil in 1998-99 repaid the IMF quickly because private creditors stopped pulling funds out relatively quickly, making it a successful case.
• In 2002, Brazil asked external banks to agree to maintain credit lines or their existing trade credits and monitor systems.
• Brazil (in 1999 and 2002) and Turkey (in 2002) asked external banks to agree to maintain interbank credit lines/trade credits and monitor systems..

Thailand and Indonesia

• These countries received substantial amounts of official financing, but it still fell short of what was needed to cover all maturing short-term external debt
• The needed domestic financial and corporate sectors restructuring ended up taking a long time and proved more costly than initially expected
• Thailand and Indonesia did not create conditions that allowed for rapid repayment to the IMF.
• There still was not enough to cover all maturing short-term external debt.

Russia

• Russia had a financial crisis in 1998 and defaulted on some debts.
• The IMF program in the summer of 1998 obviously failed to avoid a default.
• Russia could repay its 1998 IMF loan because the amount of new IMF financing in 1998 was quite small.
• Russia defaulted on $14B in domestic-law, domestic-currency debt and on $32B of Soviet-era hard-currency debt.

Argentina

• Argentina defaulted on its external debt during a financial crises
• Even a substantial financing package from the IMF couldn't prevent a bank run and devaluation.
• Argentina is an example of a case where even large amounts of financing did not prevent a default.
• Argentina was forced first to declare a bank holiday, then to default its external debt and finally to devalue.

Turkey

• Turkey received large loans from the IMF but is not in a position to repay them quickly.
• Turkey needed medium-term, not short-term, financing.
• Turkey experienced an unsuccessful rollover when every attempt was made to distance the US government from monitoring rollover rates.
• Turkey's experience indicates that a rollover of interbank exposure works with true commitment and real consequences.

Uruguay

• It is still too early to make a definitive assessment of the success of recent IMF programs in Brazil and Uruguay.
• But debt levels are high, and the political feasibility of maintaining large primary surpluses remains uncertain, even though exceptional support and policy adjustment have so far prevented default with a coercive debt reprofiling in Uruguay.

Ecuador

• Ecuador defaulted on Brady bonds and eurobonds by end-1999.
• Its short maturity eurobonds and its uncollateralized Brady bond were restructured into a new eurobond in a complicated formula.

Chapter 4: Why Nations Fail

• 1346 = in Western Europe, peasants had more power and autonomy than in Eastern Europe
• Black Death → led to dissolution of feudalism in West
• Black Death → second serfdom in Eastern Europe
• 14th century = Eastern and Western Europe started to diverge
• Led to different implication of new institutions from the 17th - 19th century for these parts of Europe
• 1600 = crown in England was weaker because of Spain and France → Atlantic trade open up new situation with greater pluralism in England while also strengthening monarchs in Spain and France

Europe and the Black Death

• The Black Death spread across Europe in the 1300s, killing roughly half its population and fundamentally transforming its societies.
• Before the plague, Europe was organized into an extractive and feudal system.
• Kings granted their land to lords, who forced peasants to work on it under harsh conditions.
• The plague killed many people, creating a labor shortage in many countries.
• In England, the peasants who survived gained more bargaining power and started demanding higher wages.
• The English government tried to freeze wages and imprison workers who sought to switch from one lord's land to another's.
• In response, the peasants rebelled in 1381, and the government withdrew these policies.
• The labor market became more inclusive.

Institutions And Crisis

• Institutions tend to change during crises, because institutions have to adapt and respond to them.
• In England the Black Death tipped the scales in the ongoing conflict between the elites and the masses.
• By redistributing power, the Black Death made it possible for the people to create more inclusive institutions.
• In Eastern Europe, land ownership was more concentrated, and lords had more power than in England.
• Landlords actually consolidated their power after the Black Death and imposed even more restrictive, extractive conditions on workers.
• While Eastern and Western Europe were similar before the plague, by 1600, they had seriously diverged: the West had developed inclusive economic institutions, while the East had developed extractive ones.
• Critical junctures—significant, disruptive historical events—can drive rapid change towards either inclusiveness or attractiveness, depending on the context in which they occur.

Crisis Response

• Not every nation will respond to the same crisis (or critical juncture) in the same way.
• Nations often diverge over time precisely because their institutions respond to the same critical junctures in different ways.
• England was slightly more inclusive and less extractive than Eastern Europe before the Black Death.
• The Black Death multiplied existing institutional differences, leading to a major divergence.
• England started to grow rapidly in the 17th century because of its inclusive political institutions, which were a result of the English Civil War (1642-1651) and, in particular, the Glorious Revolution of 1688.
• The Glorious Revolution gave Parliament the power to set economic policy and allowed “a broad cross section of society” to participate in politics for the first time.

Political Influences

• Parliament's economic reforms created strong property rights and a uniform tax code, which incentivized innovation and created an even playing field.
• These incentives drove technological advances like the steam engine, which then spurred the Industrial Revolution.
• They wouldn't have been possible without England's inclusive political institutions—especially its centralized state and strong anti-monarchy coalition.
• Just like the Black Death, the Glorious Revolution was a critical juncture—a transformational historical moment that shifted the balance of power and allowed institutions to rapidly change.
• It marked the beginning of modern inclusive institutions and economic growth not only for England, but for the world.
• It transferred power from the monarch to a broader, more diverse coalition.
• To protect all their interests, these leaders created more inclusive economic institutions—like the property rights system, which spurred innovation.
• Although it was a small start, the Glorious Revolution set the stage for greater democratization over time.
• Political institutions determined which countries adopted the Industrial Revolution's technologies and thus achieved rapid economic growth.
• England, France, and Spain were similarly absolutist in 1588, but England's monarchy was uniquely reliant on taxation, which gave Parliament significant power over it.
• Unlike the French and Spanish monarchs, Queen Elizabeth I wasn't powerful enough to monopolize trade with her colonies—she needed to work with intermediary traders instead.
• These traders started demanding and winning political changes that comparable merchants in France and Spain weren't powerful enough to achieve.
• The differences between England, Spain, and France's monarchies were relatively small before colonization and the Industrial Revolution.
• The English monarchy, for example, was slightly weaker than Spain and France in a very specific, important way: it had less control over international trade.

Monarchy Impact

• This made it possible for merchants to weaken the monarchy even further.
• In the short term, this meant the merchants were able to pressure the monarchy to change commerce laws.
• In the long term, the merchants were able to completely overthrow the monarchy in the Glorious Revolution.
• Countries with even small institutional differences can move in opposite directions when they hit key critical junctures.
• Larger institutional differences, like Eastern Europe's much stronger and more consolidated feudal system (compared to Western Europe's), can create even wider divergences.
• Depending on a combination of factors like historical events, social norms, and randomness, these institutional differences tend to accumulate gradually over time, creating a process of “institutional drift" between different societies.
• "Institutional drift"—the differences between nations that accumulate over time—only truly matters when those nations hit a critical juncture.
• Institutions transform when nations hit a critical juncture.
• Virtually all nations start with extractive institutions run by and for a small elite, but at critical junctures, the pluralistic and democratic elements in those countries can sometimes overthrow extractive institutions and replace them with inclusive ones.
• Existing institutions shape the way a society responds to critical junctures, these responses are never set in stone—they're always historically contingent, dependent on which coalition manages to take and exercise power in any given historical moment.
• The Glorious Revolution was in part contingent on Britain's powerful merchant class, whose wealth was contingent on the unexpected English defeat of the Spanish Armada in 1588.
• Contingency really just means that things could have been otherwise—history didn't have to go the way it did.
• Contingency is important because it's empowering: it suggests that people's actions and decisions often do change the course of history. Nations can overcome poverty if their people and leaders make the right choices and overthrow extractive institutions.
• Critical junctures don't always cause change.
• Sometimes, critical junctures make societies more unequal and extractive.
• Depending on the behavior of key actors, the same crisis in the same nation could make institutions either far more inclusive or far more extractive.
• English settler colonies (like the US, Canada, and Australia) tended to develop pluralistic political institutions similar to England's and quickly join in the Industrial Revolution.
• In countries like France, the Industrial Revolution caused political revolutions, which ushered in more inclusive political and economic institutions.
• Latin America's extractive colonial institutions have largely endured in its independent nations—although less so in the areas that were least integrated into the Spanish Empire (like Argentina and Chile).
• England's inclusive institutions fueled the Industrial Revolution, and other countries' institutions determined whether they benefited from it.
• The Industrial Revolution explains why the hierarchy of rich and poor countries changed so much prior to the mid-1800s but has basically stayed the same ever since.
• Sub-Saharan Africa has had the most trouble building effective institutions.
• In general, it has struggled to form centralized states.
• The profitable transatlantic slave trade encouraged African states like the Kingdom of Kongo to build extremely absolutist institutions, deny property rights, and wage a constant war on their people.
• This further fragmented the region.
• European colonialism significantly worsened Africa's trend towards extractive institutions.
• When African countries gained independence starting in the 1960s, their new leaders generally kept running institutions the same way as the Europeans. Small institutional differences and contingent historical events have led to a few exceptions.
• Sub-Saharan Africa's poverty is due to a series of patterns that have kept its institutions highly extractive over time.
• The slave trade, colonialism, and modern dictatorships all stopped both centralization and pluralism—which are the two key factors for inclusive political institutions.
• These different phases of sub-Saharan African history weren't completely random or separate: rather, they were possible mainly because institutions were already extractive.
• The slave trade made it easier for Europeans to colonize sub-Saharan Africa, and this colonialism made it easier for independent African leaders to maintain extractive institutions.
• Sub-Saharan Africa hasn't just been unlucky: rather, it has been stuck in a cycle of extractive institutions.
• Asian countries struggled to build inclusive institutions in the 19th century.
• Absolutist Chinese monarchies halted commerce as soon as creative destruction threatened their power.
• In India, the caste system and English colonialism created strongly absolutist, extractive institutions.
• In the mid-1800s, the Opium Wars made China more absolutist, but due to institutional differences, US interventions in Japan actually helped the monarchy's opponents overthrow it.
• During this Meiji Restoration, Japan built more inclusive institutions and started growing rapidly—much like South Korea, Taiwan, and China have in the 20th century.
• The opposite has also happened in places like Argentina and Russia, where extractive institutions have run out of steam and sent nations into economic decline.
• China, India, and Japan's unique institutions have shaped their economic fates.
• China and India failed to take advantage of the Industrial Revolution because they already had such advanced, centralized societies—unlike in Europe, where monarchies had less power.
• China responded to the Opium Wars by becoming more extractive, while Japan responded to US intervention by becoming more inclusive.
• The Meiji Restoration follows the same pattern as the Glorious, French, and American Revolutions. A diverse coalition created a new, more inclusive political system, which gave entrepreneurs the economic rights and freedoms that they needed in order to take advantage of new industrial innovations and grow the economy.
• The Ottoman Empire set up absolutist, highly extractive institutions throughout the Middle East.
• It wasn't as highly centralized as other empires and it struggled to collect taxes, but it still created highly unfavorable economic conditions. Peasants had virtually no property rights and state monopolies controlled most commerce.
• After World War One, European empires took over most of the Middle East and imposed extractive policies similar to those in Latin America and Africa.
• This history accounts for the Middle East's contemporary poverty (excepting the effect of oil).
• Ottoman and European colonialism impoverished the Middle East by creating extractive institutions, like insecure property rights and unsurpassable barriers to entry in every major industry.
• This stifled innovation and kept Middle Eastern economies frozen in time. Successive governments maintained the same extractive institutions over time, keeping the region in a cycle of poverty. It's no coincidence that these extractive institutions determine how oil wealth gets distributed Nearly all of it goes to the elite.
• Institutional differences are the only good explanation for global inequality.
• Inclusive institutions cause growth and extractive ones cause stagnation.
• Countries form inclusive or extractive institutions depending on how their existing institutions respond to critical junctures.

Chapter 5: Why Nations Fail summary pointers

• Most societies have had extractive economic and political institutions but have still managed to achieve some economic growth.
• However, this growth is based on existing technologies, while growth in inclusive societies is based on technological change.
• Extractive institutions limit economic growth, but this doesn't mean that the economy can never grow under them.
• Growth under extractive institutions is always limited and unsustainable, because it's not based on innovation. Benefits go only to elites, while under inclusive institutions, growth benefits a wider slice of the population.
• After World War One, the US sent the journalist Lincoln Steffens to interview Lenin and learn about the Soviet Union's economic plans.
• When he returned, he announced, “I've seen the future, and it works." And briefly, it did.
• But in 1928, Lenin's successor, Stalin, collectivized all farmland and hiked up taxes to fund the Soviet economy's industrialization. While this caused a severe famine and killed millions, the Soviet
• Union still grew quickly.
• Acemoglu and Robinson suggest that Steffens was wowed by the Soviet Union's early years of incredibly rapid growth.
• The Soviet Union only created this growth because it rapidly transferred millions of people from inefficient agricultural jobs to more productive industrial ones.
• But it imposed this transition on the population so fast that it killed numerous people and devastated the agriculture industry.
• State-controlled economies never allocate resources as efficiently as free markets, but they can still grow if the state invests in the most productive industries.
• Just like Caribbean slave societies grew by investing in sugar, the Soviet Union grew by investing in industry, which helped it catch up to Western Europe technologically and grow rapidly from the 1920s to the 1960s. This spectacular growth even convinced many American politicians and economists that the Soviet economic model was superior.
• But then, it abruptly stopped in the 1960s
• Acemoglu and Robinson believe that free, open markets are the most efficient way to allocate limited resources because they allow everyone to pursue and fulfill their individual preferences.
• Governments have to create free markets through economic institutions that give people the means to innovate and invest.
• Extractive economic institutions can't generate long-term growth because they don't incentivize innovation and they give elites the power to stop creative destruction.

Institutional Influence

• Inclusive institutions create economies based on innovation, which grow because the people who participate in them have incentives to succeed.
• Extractive institutions create economies based on coercion, which only grow because elites reshape them.
• The Soviet economy failed to incentivize innovation because citizens couldn't trust Stalin's constantly changing economic plans.
• Stalin's policies actually punished innovation and hampered creative destruction. Only the free market can properly reward innovation and not government compensation schemes, which can't even measure true innovation to begin with. Stalin could never truly promote innovation unless he willingly gave up power over the economy. In the 1600s, King Shyaam created the absolutist, extractive Kuba Kingdom and imposed new farming techniques that doubled food production.
• *Shyaam centralized and organized society enough to create an economic surplus which he then extracted and kept for himself.
• Extractive institutions still produce more growth than no institutions at all.
• Extractive institutions do give elites an incentive to increase growth as long as that growth doesn't interfere with their power. Societies' development depended on institutional differences Like the Natufians' centralized, hierarchical society. Extractive institutions ultimately limit growth by creating political instability.

• Maya city states were highly centralized, extractive societies led by kings and aristocratic elites.
  

• Extractive institutions are unsustainable because their elites fight to control the resources they extract from the masses.\
• When elites set up extractive political and economic institutions, they invest and spur economic growth so that they can extract a surplus from the masses who create it\
• Extractive institutions don't incentivize innovation or progress, and their elites tend to fight over power
• Extractive policies can spur spectacularly fast growth but they're unlikely to be sustainable in the long term.

Chapter 13: The Impossible Trinity or Policy Dilemma

• Governments in an open economy can only choose two out of three policy goals:
• Monetary independence, Exchange-rate stability, Financial integration
• The Mundell-Fleming framework explains how nations navigate these choices.
• A fixed exchange rate with perfect capital mobility means giving up monetary policy control\
• A floating exchange rate allows for monetary independence but reduces exchange-rate stability
• A closed financial system (capital controls) allows for monetary and exchange-rate control but limits global financial integration.

Trends of Trilemma

• Industrialized nations
• Moved away from fixed exchange rates after the Bretton Woods collapse Increased financial openness in the 1990s
• Reduced monetary independence after the euro was introduced in 1999.
• Emerging Markets (EMs)
• Shifted to flexible to flexible exchange rates with higher Financial intergration.
• Faced financial crises (Asian Crisis 1997-1998) that shaped their policies Emergin market Hoards Reserves deal with financial interability
• Countries like china and Japan protect against sudden financial crisis.
• Future of the Trilemma in global finance: Requires nations to balance financial stability with intergration Most countires operate in middle groun not fully floating. Developing nations adapt policies on Global shock, trade needs, and financies

Globalization and Exchage Rate Policy (Chapter 14)

• As globalization increeses rates become subject to political and mass special interest pressures.
• The Currecy policies aftect different economic groups, exoperts international investors prefer fixated rates, Customers want string curruncy Governments maintain currecny values before elections
• The trilemma: they can only choose two.
• The goals are independence, stability, freedom or flexibility. Different policy: Countries restrict fiancial control and can monitor and adjust policies and balance exchange rates and capital controls.

Trends

• After Bretton Woods crashed in the 1970's industrail decreased exchange rate stability.
• European union moved toward monearty unification with euro in 1999s. *Fiancially started risising in controls Major financial crisis have shapped policy
• The Asian Crisis 1978 made more coutrious about financial
• holding forien exchanged reserves stabilizes marlets protect againist outflows. China and other EMs ahve allowed to mantain independence while integrate. Disort global captital fows. The Political: Leaders often manuplate exchanges rates when boosting incomes during elections then devaling currency ajdjsut final takeaway"
• shape is determined and political.

Chapter 15 Points from Book Feb. 18

The great Fianical crisis occurred in amounts of debt

• The US and countires used to consume then invest so it ended up insustainable
• the economy boom in invest flows by 1997 ended in 1996 with housing stock in in housing units. Thailand came face to a terrible crisis.
• America also saw this in places in south flordia with too many homes.
• Americans got greedy in the borrowing as many Americans took vacation.
• The economy went to 8.3 financial earning as prices started to hit 40 percentage.
• US trade defficult doublded and there were more imports

Chapter 16:

The "Political Economy of the Euro Crisis" describes the most serious economic and political crisis in the history of the European Union. The crisis brought into question the very nature and future of European integration, and of monetary integration specifically. Key Points and Causes of the Euro Crisis: Timeline: Celebration of the Euro's 10th anniversary occurred in January 2009, but optimism proved premature. In late 2009, the newly elected Greek government revealed a budget deficit significantly higher than previously estimated, triggering a crisis. By 2016, economic activity in the EU and Eurozone remained below pre-crisis levels.

• Underlying causes of the crisis: Ο ο The crisis: was caused by a sudden stop of capital flows into Eurozone countries with large current account deficits
• The instability was amplied by the lack of support. O The government was dominant in the loans.
• A lot of factors caused the crisis

Open market Issues

• *Differences in macroeconomic conditions posed a challengeto euro union
• Fiscal policy Imbalances were worsened by a lack of coordination
• Fragemented regulation created uncertainty for bank funds.
• *Market bailouts anticipiate excessive From North a huge inflow of loans the accelerated. illiquid bank institutions and governments caused the Euro crisis
• Austery mesures were costly and leads to government collapse and radical policies
• Negotiats begin policies reforms.

“The fiscal compact”was signed to balance national Budgets. idea of union banking: The European Central Bank ECB promised to preserve to the euro

Economic Challenge

• Unemployment rate in the country and governments can't pay loans The policies of the causes don't resolve it
• *Highligted the trade offa

The high unemployment cause countries to become debt

• Bailots are politically infleucned

Unique Features of a Euro Crisis:

The Euro crise occurred amoung d countries regional processs were not unified

• the Mass can affect it
• The problem contuies to effect euro
• *Unless economy can’t grow that’s the worst for euro
• Need proper institues to have proper monetaqry Union:
• • True Eurozome leader of money laubility
• A more Union*
• Chapter 17: The polciital transparency cbi