Now suppose that the currencies of the two emerging economies have come under pressure capital...
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Accounting
Now suppose that the currencies of the two emerging economies have come under pressure capital is flowing out of the two countries, there is a rush to safety in global Financial markets, and the two central banks are losing reserves (i.e., it is no longer the case that they can achieve their bliss levels of reserve holdings). Using a figure similar to Eichengreen's (194, EEH ) Figure 2, explain the implications of non-cooperative versus cooperative behavior by the two central banks in their interaction with each other if they are not willing to let their currencies float.
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