Economics
ECO 349 University of Toronto Australia Domestic Economic Environment Paper

ECO 349

University of Toronto

ECO

Question Description

I’m trying to learn for my Economics class and I’m stuck. Can you help?

it is an academic paper writing by 5 people, 6300 words.

the essay is finished, but need someone to check the grammar(rewrite bad sentence) and integrate each part all together making it a good smooth essay. Please finish it before 2pm march 24th

The full instruction of essay is posted below( Chosen country: Australia) ,

Starting Point of your Hypothetical Scenario: At the beginning of January 2020, your chosen small-open economy and the world economy are hit by a series of shocks and a subsequent financial crisis. Equity markets, both domestic and around the world, are down by more than 50% (on average, by market capitalization) during the first week of January, while bond spreads have widened significantly. Key domestic financial markets have become illiquid while the exchange rate has become highly volatile as investors and markets engage in a flight-to-quality. Catalysts for the world-wide financial market shocks include a recent global economic growth rate slowdown and indications of a rapid increase in corporate loan defaults in many economies. Also, credit in China is “drying up” or falling quickly which is affecting both the real and financial sectors of that country. There are adverse knock-on effects for both Chinese firms, many of which are significant suppliers of goods in global value chains, and Chinese consumers, that purchase foreign goods. Both need access to greater credit. Recent data is suggesting that growth rates in advanced economies around the world are slowing and international trade in goods is falling precipitously. In many economies, the central bank policy interest rate is already relatively low (i.e., nearer the “effective lower bound” versus the last financial crisis), so there are fewer options today in terms of conventional monetary policy options.

Write a policy paper of between 5500 and 6500 words (around 1250 words per student, excluding charts, figures, tables, footnotes and bibliography) that includes the following mandatory sections (Note: Use these underlinedsection headings in your report and notice the weights and recommended word counts for each section):

  1. Macroeconomic Environment and Financial Market Conditions – Provide a complete description of your chosen economy, the international macroeconomic environment and financial market conditions before the financial crisis begins (in January 2020). Then, using previous crises as your guide, describe in detail the recent economic and financial market dynamics in your local economy and around the globe since the January hypothetical "starting point" described above. You must add additional elements to the scenario to ensure that a severe financial and economic crisis takes place in your economy. You should be creative, but you must ensure that the economic and financial market environment in your overall scenario is consistent with the starting point provided above, and that it is plausible. Discuss how your economy, the U.S., European and Chinese economies (e.g., economic growth rates by component, unemployment rates) and financial markets (e.g., exchange rates, market interest rates, credit spreads, equity market returns) have, and are been affected, by the shock(s). See how the IMF presents (write-up and tables) their outlook or forecasts (e.g., https://www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019 (Links to an external site.)). Use graphs, charts and tables based on historical and recent economic and financial data (from official sources such as your domestic statistical agency, your central bank, IMF, OECD, central banks around the world) to illustrate the current environment. Note: graphs, charts and tables must be produced by students by actually downloading data from official sources (No copy and pasting of pictures is permitted). Sources of data should be indicated at the bottom of each graph, chart and table. (About 1000 words, 18% weight in group assignment grade)
  • 3% - Full and complete written description of the domestic economic environment (leading up to the crisis)
  • 3% - Full and complete written description of recent international macroeconomic environment (leading up to the crisis)
  • 3% - Full and complete written description of very recent financial market conditions (leading up to the crisis)
  • 3% - Graphs, charts and tables created yourself based on historical and official data
  • 6% - Discussion of financial crisis scenario:
    • 2% - Scenario is consistent with partial scenario provided in assignment above; Scenario is plausible
    • 2% - Elements of scenario are internally consistent
    • 2% - Complete discussion of your economy, the U.S., other economies and financial markets, and how they have, and are been affected, by the shock(s)
  1. Monetary Policy Instrument OptionsGiven the domestic and international macroeconomic environment and financial market conditions, describe different conventional and unconventional (distinct) monetary policy instrument options (e.g., lower the target overnight policy interest rate to the effective lower bound) that the governing council of your central bank could use to stimulate aggregate demand in the domestic economy or achieve any of its other monetary policy objectives. Look at the various policy instruments developed at your own, and other, central banks during the last financial crisis as your guide. Make sure to explain theoretically and intuitively how each policy instrument works to stimulate aggregate demand, when and where the policy has been used, and remember to cite your references. (About 1000 words, 18% weight in group assignment grade)
  • Describe 6 (conventional and unconventional) monetary policy instrument options - 3% for each option
  • For each option:
    • 1% - Definition: how the policy instrument works in theory and intuitively
    • 1% - Discuss when and where the policy instrument has been used
    • 1% - Provide extensive references to academic journals and central bank working papers
  1. Monetary Policy Implementation – For each monetary policy instrument option, describe how your central bank should implement the policy.Describe the implementation process of each option in detail, including recommended timing and magnitudes of all financial market operations. Refer to the operations of central banks around the world over the last 10+ years, and make sure to cite your references. (About 1000 words, 18% weight in group assignment grade)
  • Describe implementation of each of 6 policy instrument options - 3% for each option
  • For each option:
    • 1% - Definition: how each monetary policy instrument option is implemented through financial markets
    • 1% - Discuss quantities and timing, and how they compare to policies instruments of other central banks historically
    • 1% - Provide extensive references to academic journals and central bank working papers
  1. Potential Effectiveness and Risks – Discuss the potential effectiveness and risks of each policy instrument. Focus on possible unintended consequences when discussing risks. You must also provide references to economic theory and empirical evidence included in academic journals! Make sure to cite your references. (About 1000 words, 18% weight in group assignment grade)
  • Describe risks and effectiveness of each of 6 policy instrument options - 3% for each option
  • For each option:
    • 1% - Effectiveness
    • 1% - Risks (unintended consequences)
    • 1% - Provide extensive references to academic journals and central bank working papers
  1. Financial Market Liquidity OperationsCompare and contrast 3 different financial market liquidity operations available to your central bank and would likely be required based on your economic crisis scenario. The specific financial market liquidity operations should support the different monetary policy options discussed in earlier sections and must be consistent with your scenario. Provide explicit details including the timing of the operations and compare to recent operations of central banks around the world. Make sure to cite your references. (About 1000 words, 18% weight in group assignment grade)
  • Describe 3 operations - 6% each
  • For each option:
    • 2% - Description of operation & discuss quantities and timing
    • 2% - Consistency with monetary policy options discussed
    • 1% - Provide extensive references to academic journals and central bank working papers
  1. Policy RecommendationsProvide policy recommendations (including monetary policy instruments, monetary policy implementation and financial market liquidity provision) based on the discussion in Sections 1 to 5. Explain why your group chose one or more monetary policy instrument options and financial market liquidity operations. Discuss the timing and magnitude of each recommended policy. (About 500 words, 10% weight)
  1. A cover page should include the title of your paper, names and student numbers, course number, instructor’s name, and a 150-word summary of your financial crisis scenario and policy recommendations. Also, include a List of References at the end of your paper. (Mandatory; no weight)

Strong suggestion for group work: Break-up the assignment among individual group members. Each student in a group of 5 could take the lead on one of Sections 1 to 5. Meet weekly as a group starting in early February. By the third week of February, make sure everyone in your group has agreed to an detailed financial and economic crisis scenario. By the second week of March, as a group, jointly agree on a set of policy recommendations. Each student should review the written work of others in the group as you make progress so that there is consistency across sections of the paper including, for example, with respect to economic theory and writing style. Use the rest of March to properly write-up your paper and get feedback.

Organisation, Structure, Length and Format:

  • The total length of the group paper should be around 25 to 30 pages (not including tables and charts).
  • Mandatory Formatting: 1-inch margins; double-spaced; Use ‘Times New Roman’ with ‘12’ font size.
  • Charts, figures and tables and other quantitative material should be included as appendices at the end of the paper, but should be cited or summarized in the main body of the text. Charts, figures and tables must be produced by students by downloading data from official sources (No copy and pasting of charts/figures/tables is permitted). Sources of data should be indicated at the bottom of each chart, figure and table.
  • The main text of your paper must be between 5500 and 6500 words (excluding charts, figures, tables, and references, which should be in appendices at the end of your paper).
    • Include footnotes as required.
  • You should cite peer-reviewed economic journal articles to support your analysis
  • Use the APA Systemto provide information about your sources in your paper
  • Looking for data: Go to national statistical agencies, central bank webpages, IMF, BIS, OECD, etc.
  • 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.
  • Your paper should be free of spelling and grammatical errors, clear and well written.

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Final Answer

Attached.

Running Head: ECO349 GROUP ASSIGNMENT

Eco349 Group Assignment

Students

Professor

Course

Date

1

ECO349 GROUP ASSIGNMENT

2

Table of Contents
Abstract ............................................................................................................................... 4
Part 1: Background and scenario ........................................................................................ 5
Domestic Economic Environment................................................................................... 5
International Macroeconomic Environment .................................................................... 7
Financial Market Conditions ........................................................................................... 9
Part 2: Monetary Policy Instrument Options .....................................................................11
Increase monetary base ..................................................................................................11
Lowering long-term government yield.......................................................................... 12
Negative interest rates ................................................................................................... 13
Lowering the overnight policy target rate ..................................................................... 13
Lowering the value of the domestic currency ............................................................... 14
Forward Guidance ......................................................................................................... 15
Part 3: Monetary Policy Implementation .......................................................................... 16
Increase monetary base ................................................................................................. 16
Lowering long-term government yield.......................................................................... 17
Cut the cash rate to zero or even to negative rates ........................................................ 18
Overnight repo ............................................................................................................... 19

ECO349 GROUP ASSIGNMENT

3

FX intervention.............................................................................................................. 20
Forward Guidance ......................................................................................................... 21
Part 4: Effectiveness and Risks of Policies ....................................................................... 21
Increasing the monetary base ........................................................................................ 21
Lowering long-term govt yield...................................................................................... 22
Negative interest rate ..................................................................................................... 23
Lowering the overnight policy target rate ..................................................................... 24
Lowering the value of the domestic currency ............................................................... 25
Forward Guidance ......................................................................................................... 25
Part 5: Liquidity ................................................................................................................ 26
Liquidity operations ...................................................................................................... 26
Standing liquidity facility .............................................................................................. 27
Extraordinary Market-Wide Liquidity Facilities ........................................................... 28
Emergency Lending Assistance ..................................................................................... 30
Timing Problems and Usage ......................................................................................... 30
Part 6: Recommendations and Policies ............................................................................. 31
References ......................................................................................................................... 33

ECO349 GROUP ASSIGNMENT

4
Abstract

Monetary policy was eased in 2019 to support income growth and employment
and to provide greater confidence that inflation will be consistent with medium-term target.
This policy response is supporting the overall growth outlook in several channels. The
Australian dollar has depreciated in value. It is currently around its lowest level historically.
Lenders and borrowers face interest rates at very low levels. This is party due to the recent
Australian Bushfires, the Covid-19 pandemic and the tensions from the US-China
negotiations about their disagreement on technology and trade. The effects of these shocks
may take time to work their way through the Australian economy. However, some early
effects are evident including higher prices on assets, new borrowing, and a depreciation of
the exchange rate. The low interest rates in the country reflect the global low interest rates
and the only gradual progress towards the goals of the Bank, as the Australian economy
maneuvers through slow economic growth. This paper sets out to evaluate monetary
polices and recommend that which suits the Australian economy.

ECO349 GROUP ASSIGNMENT

5

Part 1: Background and scenario
Domestic Economic Environment

Officially known as the Commonwealth of Australia, this country in Oceania has
approximately 25 million people (Analysis & Policy Observatory, 2018) in population
while possessing a rapidly growing economy that ranks as the 14th (Analysis & Policy
Observatory, 2018) most significant in the world. There was a 0.4% growth in the
Australian in the third quarter and a 1.7% growth in the fourth quarter (Table 1). Various
factors have contributed to this growth. Low household income growth has prompted weak
consumption growth. The recent decrease in the housing prices has also reduced investment.
The farming sector has also contributed to the downturn as a result of the impact of the
ongoing drought, and just recently the Australian fires. However, some domestic economic
conditions such as the Australian bushfires and the Covid-19 have been weighing the
economy down. The coronavirus poses risks to commodity exports. The effects of the
Australian fires alongside its poor quality of air quality is also depicted by decreased sales
at restaurants and cafes in New South Wales (Reserve Bank of Australia, Domestic
Economic Conditions, 2020). Motor vehicle sales has also been continuously decreasing
for the past few months since January.

Table 1: Demand and Output Growth

ECO349 GROUP ASSIGNMENT

6

September

June,

Year

quarter 2019

quarter 2019 September

to Share
GDP

Quarter 2019
GDP

0.4

0.6

1.7

100

Domestic demand

0.2

0.3

0.9

98

– Consumption

0.1

0.3

1.2

56

– Dwelling investment

-0.7

-3.7

-9.6

6

– Mining investment

-7.8

3.7

-11.2

3

-1.5

1.1

9



Non-mining -0.4

investment
– Public consumption

0.9

2.5

6.0

19

– Public investment

3.8

-1.5

0.60.6

5

Change in inventories

0.1

-0.4

-0.3

n/a

Exports

0.7

1.3

3.3

24

Imports

-0.2

-1.1

-1.5

22

Mining Activity

0.7

1.7

2.3

15

Non-Mining Activity

0.4

0.4

1.7

85

Farm GDP

-1.4

-0.2

-5.9

2

Non-farm GDP

0.5

0.6

1.9

98

Nominal GDP

1.1

1.5

5.5

n/a

of

ECO349 GROUP ASSIGNMENT
Terms of Trade

7

0.4

1.4

7.8

n/a

Sources: ABS; RBA.
International Macroeconomic Environment

The international macroeconomic environment, is still uncertain and unreasonable.
In January, China and the US signed a partial trade act thus diminishing their disagreement
over technology and trade. This argument minimized, but did not eliminate, the crucial
risks to internal growth. More recently, the coronavirus outbreak has adversely influenced
growth and has contributed to global uncertainty in several countries, especially China and
other Asian economies. In China, the economic effects include lower domestic travel and
other consumption, as well as a disruption to the movement of goods. It has also caused a
decline in the price of iron ore as shown in Table 2. The effects of the pandemic have also
been flowing to other global economies, especially that of east Asia. For instance, it has
resulted in a sharp fall of Chinese outbound tourism, has disrupted global supply chains,
and also decreased Chinese demand for other exports (Reserve Bank of Australia, The
International Environment, 2020). As East Asia and China are Australia’s major trading
partners, their overall growth will likely decrease in 2020.

There are yet more risks which

remain. Even though the trade agreement between US and China during their negotiations
emerged positive, dispute escalation is a major downside risk to the outlook given the

ECO349 GROUP ASSIGNMENT

8

limited nature of the phase one deal and possible weighing on trade and investment from
renewed tensions.

Table 2: Commodity Price Growth

Since previous Statement

Over the past year

Bulk commodities

4

-17

– Iron ore

2

-8

– Coking coal

11

-28

– Thermal coal

2

-32

Rural

3

-4

Base metals

-9

-13

Gold

6

18

Brent crude oil

-12

-11

RBA ICP

-1

-9



Using

spot

prices

for

bulk 1

commodities

Sources: Bloomberg; IHS Markit; RBA

-14

ECO349 GROUP ASSIGNMENT

9

Financial Market Conditions

According to data from the World Bank, Australia has experienced at least 27 years
of uninterrupted dollar GDP growth, reaching around $1.5 trillion (Commonwealth of
Australia , 2019) in 2018, as shown in the graph below.

GDP (In US$ Trillions)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

Source: IMF, World Economic Outlook database

The equity prices of the Australian economy increased in the previous year. It even
reached its highest – historical - on January. However, it has reduced within the past three
months as a result of the increased concerns about the economic effects of the Covid-19.
Lately, the Australian dollar has also depreciated in value and is close to its lowest
histor...

ProfAlston (8725)
UCLA

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