3. Policy-Maker for a Day You are interviewing with a consulting group that regularly advises emerging market governments. To assess your knowledge of exchange rates and the current account, they ask for brief replies to the following questions. How do you answer in two to five sentences on each? a. Pakistan has a current account deficit approaching five percent of its GDP. What measure of the exchange rate will it have to target to reduce that current account deficit? And how should that measure of the exchange rate move? How long, approximately, does it take for a country to resolve its current account deficit and come back to a more neutral position? b. An imaginary emerging market economy asks you whether to fix its exchange rate or let it float. It is coming under pressure from its export sector to have more exchange rate stability but it is also worried about what fixing means for monetary policy. What do you say? c. The country of Bolivia has a semi-fixed exchange rate against a basket of currencies. It is worried that its currency, the Boliviano, is over-valued compared to where the market would have it and over-valued also in real terms. They are asking whether their country is at risk for a financial crisis. What do you say? 3. Policy-Maker for a Day You are interviewing with a consulting group that regularly advises emerging market governments. To assess your knowledge of exchange rates and the current account, they ask for brief replies to the following questions. How do you answer in two to five sentences on each? a. Pakistan has a current account deficit approaching five percent of its GDP. What measure of the exchange rate will it have to target to reduce that current account deficit? And how should that measure of the exchange rate move? How long, approximately, does it take for a country to resolve its current account deficit and come back to a more neutral position? b. An imaginary emerging market economy asks you whether to fix its exchange rate or let it float. It is coming under pressure from its export sector to have more exchange rate stability but it is also worried about what fixing means for monetary policy. What do you say? c. The country of Bolivia has a semi-fixed exchange rate against a basket of currencies. It is worried that its currency, the Boliviano, is over-valued compared to where the market would have it and over-valued also in real terms. They are asking whether their country is at risk for a financial crisis. What do you say