Assignment Requirements

In the aftermath of the global financial crisis (2007-2009) a number of advanced economies adopted unconventional monetary policies as interest rates reached the zero-lower-bound (ZLB). Raghuram Rajan, the new Governor of the Reserve Bank of India has recently suggested that it is still unclear whether these �policies� domestic benefits have offset their damaging spillovers to other economies.� Further, in a world with highly volatile capital flows, �central banks around the world, in an effort to keep capital away and hold down the exchange rate, risk becoming locked into a cycle of competitive easing aimed at maximizing their countries share of scarce existing world demand.� There is now a worry that as the advanced economies exit from unconventional monetary policy, central banks in these countries may not account for the impact of their changing policies on emerging market economies. In response, emerging economies may engage in policies that maintain a competitive exchange rate in order to avoid running large trade account deficits.
Choose an emerging market country whose currency has been recently impacted by news that the U.S. Fed, ECB, Bank of England or the Bank of Japan may begin to taper their unconventional monetary policies; describe what happened to the price of their currency and capital flows to and from the country; describe the tools that the country has used (or may use in the future) to mitigate the impact of future Fed/ECB/BoE/BoJ tapering; discuss whether you think these actions will be effective at maintaining a competitive exchange rate; and evaluate the benefits, costs, risks of these policy actions.
Required Background Reading:
� Fed Tapering News and Emerging Markets

Fed Tapering News and Emerging Markets

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Your paper should include the following (Note: Maximum Total Grade = 100%):
1. A short summary of recent newspaper articles and reports documenting the adverse effects on the currency and capital flows from a particular emerging market. (10%)
2. Graphs, figures, tables as background information or evidence. Include these in an appendix, but refer to them in the main text. Collect data from World Bank, IMF, OECD, etc. websites. (10%)
3. The different reasons (suggested in articles and reports) why the country may face pressure as Fed tapering become more and more likely. (10%)
4. The potential actions that the country has taken or may take in upcoming months. (10%)
5. The economic rationale behind these policies. Provide at least three references (i.e., journal articles) to economic theory. (30%)
6. The effectiveness of these policies in the short- and long-run. Provide economic rationale. (10%)
7. The potential costs and risks of these policy actions. Provide economic rationale. (10%)
8. A concluding paragraph with an explicit recommendation to the government of the country on an appropriate course of action. (5%)
9. A proper list of references. (5%)
Organisation, Structure, Length and Format:
� Term papers are not to be done in groups. This is a single authored paper.
� Include a cover page and appendices. The cover page should include the title of your paper, your name and student number, course title and number, and the instructor�s name.
� Figures, tables, calculations and other quantitative material should be added as appendices, but should be cited or summarized in the main body of the text.
� You must include sources such as the course text and journal articles to support your analysis. Search EconLit (https://library2.utm.utoronto.ca/economics) for references to economic theory.
� A list of references must be included at the end of your paper. You must provide appropriate information about all external sources of information used, including websites.
� The total length of the paper should be between 10-15 pages. The main text (not including cover page, references, footnotes, appendices) should be between 2000 and 2500 words.
� Your paper should be free of spelling errors and grammatical errors.
� Formatting: One-inch margins; double-spaced; Times New Roman

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