Exchange Rate Management Regimes
A growing number of countries are choosing to implement exchange rate management regimes, which involve abandoning national monetary policy control by fixing or limiting currency fluctuations. This trend is largely driven by a key hypothesis, often associated with the 'Fix model' of exchange rates: that adopting such a regime can be an effective tool for stabilizing domestic inflation, especially in economies with a history of price instability.
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Introduction to Macroeconomics Course
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Exchange Rate Management Regimes
Policy Dilemma in a Small Open Economy
Economic Adjustment to an External Shock
A country that has historically struggled with high inflation decides to implement a fixed exchange rate regime to stabilize its prices. Soon after, it faces a severe negative shock to external demand for its exports. In this situation, what is the primary macroeconomic cost the country will likely face by maintaining the fixed rate, compared to allowing its currency to float?
For a country with a history of high and volatile inflation, adopting a floating exchange rate regime is generally the most effective first step to anchor inflation expectations and stabilize the domestic price level.
Learn After
The Eurozone as the Most Prominent Common Currency Area
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Retained Monetary Autonomy in Target Exchange Rate Regimes
Managed Exchange Rate to Prevent Appreciation: The Case of China
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Policy Dilemma for High-Inflation Economies: Fix the Exchange Rate or Abandon the Currency?
Sustainability of a Fixed Exchange Rate Depends on Commitment to Disinflation Costs
Transfer of Monetary Policy Control in a Fixed Exchange Rate Regime
Policy Trade-offs in Exchange Rate Regimes
Monetary Policy Strategy for a High-Inflation Economy
A country with a persistent history of high inflation decides to permanently fix its currency's value to that of a large, economically stable neighboring country with a reputation for low inflation. What is the most likely primary economic rationale for this decision?
Consequences of Adopting a Fixed Exchange Rate