Capital Market Others

Question 1

What is the Taylor Rule?

Answer 1

It is used to assess the central banks and predict changes.

Determines the target interest rate using the neutral rate, expected GDP relative to long get, trend, and expected inflation relative to its targeted amount.

Formalized as:

Rtarget = R neutral + [0.5(GDPexp - GDPtrend)+ 0.5(infl exp - infl target)]

Question 2

What are five elements of a pro-growth government structural policy?

Answer 2

Sound fiscal policy
Minimal public sector intrusion
private sector competition
infrastructure and human capital development
sound tax policies

Question 3

What are four factors usually associated with emerging market economies (vs developed)?

Answer 3

Require high rates of investment - reliance on foreign capital

Volatile political and social situations

IMF/World Bank provide external sources of investment in return for structural reforms

Small and undiversified economies

Question 4

What are the four approaches to forecasting exchange rates?

Answer 4

PPP
Relative economic strength
Capital flows (FDI)
Savings-investment imbalances, through need for FX savings (eg. China)