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11/04/2020

Comments

carrie morrison

Similarly to my peers, I found this article quite difficult to comprehend due to the use of economic terminology I am not familiar with. However, from what I can understand, the authors of this article attempt to reconcile the lack of evidence to support the idea that advanced developed countries can use interest rates to influence capital flows and pricing of external debt in emerging markets. It was interesting to read how heavily industrial countries can impact developing countries. I assumed that lending and borrowing played a role, however, I was unaware of the impact that interest rates have on the amount of lending and borrowing. Moreover, while discussing the South Korea paper we emphasized that not all theories of development work for every country, and the different behavior between the Latin America and East Asian fixed-rate issues demonstrates that idea. I find this a little shocking because I would except these fixed rate issues to perform the same. However, as the paper mentions, due to differing regions they are affected differently.
The paper concludes by stating that by considering both the supply and demand side, they are able to confirm that interest rates in developed countries have an impact on the emerging market, discussing specifically the impact of U.S. interest rates on these markets. However, I wonder if these findings still hold today, due to COVID-19 and the current political climate? Has the US market been slightly destabilized and are countries investing elsewhere? Moreover, I also wonder how these findings impact future fiscal and policy decisions? Is there a responsibility for advanced industrial countries to monitor their activity in order to not unintentionally, or intentionally, harm these emerging markets?

Eric Schleicher

I have to some degree echo what many other people have been saying so far - this article was definitely difficult to comprehend, as it didn't have the same sort of intuitive understanding that many of the other articles we have read throughout the term have had. It's obviously important though - we can read a lot about relatively qualitative approaches to development and those are easier to understand the mechanisms of. It is simpler to see how improving women's rights or improving malaria resistance would be helpful and conducive to economic development. Though, it is important for us all to try to understand all the other underlying mechanisms that contribute to development, in this case the flow of capital and interplay of interest rates between countries. It is interesting to consider how a country such as the United States or many other developed nations can target interest rates that are in the best interest of their domestic financial institutions, but also those interest rates will determine the inflow or outflow of capital depending on the attractiveness of those rates to other countries. This was an interesting article although I retained less of it than many others.

John Lavette

While this article is very dense and uses technical jargon which I found to be difficult to follow at times, the conclusions formed are interesting and seem logical. When considering the forex market, both the supply and demand side for a country’s bonds must be considered. I am happy that I was able to read this paper after taking international finance as I was familiar with the concepts discussed. I was reminded of two topics we discussed in international finance. Firstly, the discussion of rational action in foreign lenders. I remember discussing that while carry trade could be explained through risk premia associated with lending in developing countries, lenders often take bandwagon actions without fully considering the risks associated with foreign investment. Secondly, the monetary trilemma when considering exchange rate policies was useful when unpacking the conclusion that specific cases may differ between nations. The trilemma states that a nation can pick two of the following traits for its monetary policy: exchange rate stability, free capital mobility, and independent policy. Therefore, a nation with fixed exchange rates will be impacted much differently to rising interest rates in industrial countries than those who allow a floating exchange rate. Also, a two countries which fix their exchange rate to the dollar must choose either to implement capital controls or concede their monetary policy to the nation to which they are fixing their currency. I am interested to discuss the paper in class to clarify some of the denser topics discussed in the paper, but it stands to reason that since exchange rate policy is specific to each nation since the transition from the Breton Woods era to the current non-system.

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