Fixed exchange rate system or monetary unions

‭Fixed exchange rate system or monetary unions‬ ‭ irtuous effects of the floating exchange system denied by the facts. This is why Europe has‬ V ‭gradually developed close monetary cooperation. Fixed exchange rate regime has several‬ ‭advantages:‬ ‭-Reduces uncertainty for exporters and eliminates foreign exchange transaction costs.‬ ‭-Reduces inflation by stabilizing the price of M.‬ ‭-Imposes competitiveness constraints on national producers.‬ ‭-Forces efficiency in internal PM‬ ‭-Increase confidence in the country's currency.‬ ‭ ut disadvantages:‬ B ‭-Obligation of the BC to defend parity is expensive in foreign currency and requires the creation of‬ ‭ nproductive permanent reserves.‬ u ‭-If freedom of the K, then loss of sovereignty of the PM.‬ ‭-The inability of this system to deal with recurring currency crises led Europe to adopt a single‬ ‭currency (see the theories of the ZMO).‬ ‭ )‬ b ‭Exchange rate management:‬ ‭The devaluation policy:‬‭-J curve and its limits.‬ ‭ trong currency policy:‬ S ‭Strong currency = currency which tends to appreciate while It is equal or weaker than abroad.‬ ‭ bjective: to ease in the medium term the external constraint to exit the cycle: inflation - trade‬ O ‭deficit - devaluation. Indeed, strong currency allows you to benefit from cheaper‬‭imported‬ ‭products‬‭. But an increase in the price of‬‭inflation‬‭policy‬‭(lower costs of Y, notably salaries) to‬ ‭restore price competitiveness. This should encourage E to engage in structural‬‭competitiveness‬‭.‬ ‭This must lead to trade surpluses, which promotes strengthening of the currency - a virtuous circle‬ ‭of strong currencies.‬ ‭However, if overvalued‬‭currency‬‭, strong currency policy‬‭may result in a deterioration of the BC‬ ‭linked to an increase in the TC, which degrades price competitiveness. We must then increase‬ ‭disinflation to reduce the imbalance.‬ ‭ - Tax policy:‬ 2 ‭Tax policy‬‭=set of measures aimed at modifying the‬‭level and/or structure of the tax burden. The tax‬ ‭tool remains, within the Community framework, one of the rare levers that States still have to act on‬ ‭the economy.‬ ‭ )‬‭Tax policy issues:‬ a ‭Tax policy is an essential component of economic policy:‬‭Four‬ ‭objectives:‬ ‭-‬‭Finance the Y of collective goods for which the market‬‭is failing‬‭:since the private sector does‬ ‭not want to finance these goods because of free-rider behavior, the State can force the taxpayer to‬ ‭finance them through taxes.‬ ‭-Correcting inequalities in the distribution of primary income and wealth‬‭:It is generally‬ ‭accepted that it is‬ ‭ rogressive taxes, the average rate of which increases with income or wealth, which make it‬ p ‭possible to reduce the range of income and wealth.‬ ‭See‬‭Change Model‬‭,‬‭Aghion, This, Cohen‬‭,‬‭2014‬‭.‬ ‭-‬‭Stabilize economic activity: can have a counter-cyclical‬‭objective -‬‭automatic‬ ‭stabilizers‬‭:‭w ‬ hen the economic slowdown, tax reduction‬‭to revive the D (‬‭tax multiplier‬‭) and‬ ‭therefore the activity. In a situation of overheating, raising taxes allows the coffers to be filled for‬ ‭the next drop, and slows down D and activity.‬ ‭-Act on the behavior of economic agents:‬‭Tax incentives‬‭have become a central issue. They‬ ‭aim to encourage socially beneficial activities and discourage those considered harmful. Taxation‬ ‭makes it possible to correct externalities: taxes if negative and tax exemptions if positive‬