Webpages useful for teachers of intermediate macroeconomics:

The Overvalued Euro

2001-12-03

Powerpoint Version

Ever since its inception at the start of 1999, the euro has lost value: it is down more than twenty percent since the beginning. The standard explanation is that investors have confidence in the Fed--that it will strike the proper balance between price stability and economic growth. By contrasts, investors fear that the European Central Bank will focus too much on price stability, not enough on growth, and so European profits will be low and European competitiveness will deteriorate over time.

An alternative theory is that the dollar is a “safe haven”: whenever investors become more risk-averse, they pile into dollars. And uncertainty has certainly grown since the start of the euro, as the long boom of the 1990s has come to an end.

The last theory is, of course, that the euro is undervalued, and will recover soon.


Previous Handouts

2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)


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