Errata Sheet for
Daniels/VanHoose International Monetary and Financial Economics 3e
0324261608
Errata corrections made in red.
Chapter 2, Page 57:
Foreign Exchange Market Intervention, 2nd paragraph
Consider the euro appreciation depicted in Figure 2–8 on page 58. Suppose
European policymakers prefer the value of the euro relative to the dollar to re-
main steady at Seand not to rise to S’. Given the rise in demand from D€to
D’€, at exchange rate Se the quantity of euros demanded, Q’dexceeds the quan-
tity of euros supplied, Qe. It is this difference between quantity demanded and
quantity supplied, depicted as the distance between point F and point E in the
figure, which causes the euro to appreciate in value relative to the dollar.
Chapter 2, Page 58:
Figure 2-8 Foreign Exchange Market Intervention
Chapter 2, Page 63:
Relative Purchasing Power Parity, 5th paragraph
Using the percentage change formula, the rate of inflation in the United
States between 2000 and 2004 was 8.80 percent [(121.12 – 111.4)/111.4 x
100 8.80]. For the United Kingdom, the rate of inflation over this period
was 9.13 percent [(123.1 – 112.8)/112.8 x100 9.13]. The rate of depreciation
of the dollar was 14.15 percent [(1.871 – 1.639)/1.639 x100 14.15].
Chapter 2, Page 67:
Questions and Problems
5. Suppose we observe the following information for the euro area, Canada, and the
United States.
Using this information, calculate the 2003 and 2004 effective exchange values for the
U.S. dollar using 2003 as the base year. Do the values you calculated indicate an ap-
preciation or depreciation of the U.S. dollar? What is the rate of appreciation or
depreciation?
Chapter 4, Page 112:
Figure 4–3 A Shift in the Supply of Loanable Funds, caption
Initially the market for
loanable funds is in
equilibrium at point A with
interest rate RA. The shift of
the supply schedule from SA to
SB illustrates a decrease in the
supply of loanable funds. At
interest rate RA, the quantity
demanded exceeds the
quantity supplied. The interest
rate will increaser until there
is no longer an excess quantity
demanded, which occurs at
interest rate RB.
Chapter 4, Page 127:
3rd paragraph
Using the $1 million we borrowed, we can exchange it for SFr1.259
($1 million x1.259 SFr/$ SFr1.259 million). Next we use the SFr1.259 million
to purchase a Eurocurrency deposit with a return of 0.1875 (3/16 0.1875)
percent. At the end of three months the principal and interest on the Swiss franc
Euroccurency deposit is
SFr1.259[1 (0.001875/4)] SFr1,259,590.
Chapter 6, Page 210:
Table 6–3 The Consolidated Balance Sheets of the Federal Reserve System, the European Systemof Central Banks (ESCB), and the Bank of Japan
Chapter 9, Page 303:
Figure 9–4 The Effect of a Foreign Exchange Purchase by the Bank of Japan on the Fed’s Balance Sheet
Chapter 11, Page 406:
Figure 11–11 A Two-Country Framework with Perfect Capital Mobility and a Fixed Exchange Rate, caption
This figure shows how equilibrium real income levels and nominal interest rates arise in two nations whose borders are fully
open to flows of financial resources. For the domestic country, an IS–LM equilibrium arises at point A in panel (a), at which
equilibrium real income is equal to y1 and the equilibrium nominal interest rate is equal to R1. In the absence of any domestic
currency depreciation, uncovered interest parity implies that the equilibrium domestic interest rate must equal the equilibrium
foreign interest rate, R*1 in panel (b), which is determined by IS–LM equilibrium for the foreign nation. This is point A in
panel (b), at which the equilibrium level of foreign real income is equal to y*1.
Chapter 13, Page 466:
Figure 13–7 The Effect of an Increase in Government Spending on Aggregate Demandin an Open Economy with a Floating Exchange Rate, caption
In all three pairs of panels, an increase in government expenditures causes the IS schedule to shift rightward, inducing initial
increases in the equilibrium nominal interest rate from R1 to R′and in the level of equilibrium real income from y1 to y′
exchange rates. Panel (a1) depicts a situation of low capital mobility, which the rise in government spending causes a balance-of-payments deficit at point B, which induces a currency depreciation and an additional rightward shift in the IS schedule. At
the final equilibrium point C there is a potentially sizable expansion in aggregate demand in panel (a2). With high or perfect
capital mobility, in contrast, an increase in government spending causes a balance-of-payments surplus, a currency
appreciation, and a partially [panel (b1)] or fully [panel (c1)] offsetting leftward shift in the IS schedule. Thus, the aggregate
demand effect of a rise in government expenditures is mitigated by higher capital mobility.