The Exchange Rate Channel of Monetary Policy
The impact of the exchange rate on aggregate demand, primarily through its effect on net exports, constitutes a significant channel for the transmission of monetary policy. In contemporary inflation-targeting frameworks, central banks do not aim to directly control the exchange rate, as its value is determined by market forces in foreign exchange markets. Instead, they strategically consider how adjustments to the policy interest rate will indirectly influence the exchange rate, thereby affecting net exports, output, and inflation.
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Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
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Learn After
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Complexity of the Monetary Policy-Exchange Rate Link
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