Fixed Exchange Rates In a regime of fixed exchange rates, how might a Central Bank operate its monetary policy and its policy for intervention in foreign exchange markets? Why does it need foreign exchange reserves? The last 20 years have seen an increased international interdependence due to the reduction in the controls on capital flows between countries have been much reduced. Also, since the early 1970's, many countries have permitted much more flexibility in their exchange rates. These developments have raised several issues: how does the exchange rate regime affect the efficacy of domestic monetary and fiscal policies undertaken by small, open economies? In response to this question, many analysts such as exchange rate and balance of payment using IS-LM model, have contributed to the rapid development of the open economy models. An exchange rate regime is a descript....

Number Of Pages: 6

Number Of Words: 1542

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