Econ110BW11 - Lec 22 A - GRol (1)

Econ110BW11 - Lec 22 A - GRol (1) - Macroeconomics B Econ...

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Macroeconomics B Econ 110B, Winter 2011 Prof. Giacomo Rondina Lecture 22
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Mundell Fleming Model: Fixed Exchange Rate ± UIP ¾ fixed exchange rate * 1 1 e i EE i + = + ¾ implication for domestic LM * * 1 1 e i E E E E ii i + =⇒ =⇒= = + () * M YL i P = Monetary Authority loses independence of Monetary Policy! 2 Output, the Interest Rate and the Exchange Rate (Ch. 20)
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Implementation of Monetary Policy: Fixed Exchange Rate ssets abilities Central Bank Balance Sheet in Open Economy Assets Liabilities Domestic Bonds B Money Supply M Foreign Reserves F 3 Output, the Interest Rate and the Exchange Rate (Ch. 20)
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Implementation of Monetary Policy: Fixed Exchange Rate ssets abilities Central Bank Balance Sheet in Open Economy Assets Liabilities Domestic Bonds B Money Supply M Foreign Reserves F ± Suppose Y and so upward pressure on i and E :whatcantheCBdoto keep E fixed? ¾ Buy foreign reserves F by issuing more domestic currency M .
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Econ110BW11 - Lec 22 A - GRol (1) - Macroeconomics B Econ...

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