Topic of this assignment is International

Introduction

INTERNATIONAL MONETARY ECONOMICS

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How exposed is the market to external shocks

Events originating outside the domestic economic system are external shocks. Some of the external shocks such as the pandemic and financial crisis are considered to affect the market negatively. They create the aspect of instability which results in a higher unemployment rate, rising poverty, falling real incomes, and weaker economic growth. Basing on the case of how the market is exposed to external shocks, several parameters can be focused on. This includes exchange rates, terms of trade, trade openness government consumption on expenditure, and domestic monetary policies. The market is exposed to high exchange rates, this affects the prices of imported goods hence changing in value. It also impacts on the value of domestic products in Germany (Thorbecke and Kato, 2012). They also impact investment performance, inflation, and interest rates hence affecting several sectors such as the job market and real estate sectors. An economy that is growing faster is highly considered to have attributes related to a high rate of investment from the government and private sectors.

Graph showing an increase in government spending and how it affects the market.

How exposed is the economy to internal shocks (eg. fluctuations in demand for money / regional shocks)

Fluctuations in demand for money can be adjusted result in changes in income levels. In the current market, the demand for many keeps on fluctuating as a result of a change in the value of goods. If the Fed increases the money supply, the supply curve is considered to shift to the right. This increases the price of products on the market. The regional shocks are considered to increase the tightness of the labor market. Vacancy changes and unemployment rates are considered to impact on the demand and availability of goods to regions that are currency circulation is low.

Specify the exchange rate regime

It is considered to involve monetary authority pegging its currency’s exchange rate to another currency. The country’s monetary policy is responsible for the exchange rate regime. The regime is involved in the implementation of specified policies that are responsible for the re-orientation of export goods and how they affect the economy of Germany. In Germany, the exchange rates are controlled by the stock market that determines tax rates and the value of the currency when compared to a dollar (Obstfeld, 2009). Monetary constraints and wage moderation in the Germany market are the main cause of currency reform that favors real assets over money-saving.

Source (Obstfeld, M., 2009)

Risks associated with exchange rates in the Germany market include; transactional risks that are considered to influence the potential for exchange rated-related business in German. The value of imported goods is affected by the exchange rates whenever the demand for money becomes affected by the global market. Regression for the export and imports is taken together hence impacting the real appreciation on the trade balance. This affects Germany’s economy from all directions hence impact on the circular flow of currency. The exchange rate of goods on Germany’s market is standardized by the use of several policies that are enacted by many organizations such as monetary policies. This policy is effective at ensuring that the money supply in Germany’s economy circulates smoothly hence promoting the sustainability of the economy (Gros, D., 2015).

References

Thorbecke, W. and Kato, A., 2012. The effect of exchange rate changes on Germany’s exports. Research Institute of Economy, Trade and Industry RIETI Discussion Paper Series.

Gros, D., 2015. Germany’s stake in exchange rate stability. Intereconomics, 31(5), pp.236-240.

Obstfeld, M., 2009. Exchange Rates, Inflation and the Sterilization Problem: Germany, 1975-1981 (No. w0963). National Bureau of Economic Research.