MGEA01H3 Lecture Notes - Lecture 24: Government Spending, Fixed Exchange-Rate System, Exchange-Rate Regime
14 Apr 2016
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MGEA01H3 Full Course Notes
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Outline (cid:120) exchange rate policy flexible exchange rate vs. fixed exchange rate. (cid:120) exchange rate regime and macroeconomic policy. (cid:120) wrap up the course! Examples include canada, the u. s. (cid:159) fixed exchange rate exchange rate is held fixed at a pre-specified level. Let"s see how the central bank fixed the exchange rate via foreign exchange market intervention. If the official exchange rate is e0 & the current market exchange rate is emkt: (cid:120) at e0, there is excess supply of dc. Dc (cid:159) there will be pressure for dc to depreciate back to emkt. To keep e at e0, the central bank (cb) will buy up the excess supply of dc at e0 of cial reserves (the cb"s holding of fc denominated assets ) down. 3 (cid:120) when adopting a fixed exchange rate, it is important for the central bank to choose the official rate at an appropriate level. A (market value of the dc) to the economy.
