and capital mobility on the extent of monetary policy “spillovers.” I provide with pegged exchange rates cannot pursue independent monetary policy, and any Under a flexible exchange rate regime, (real) currency appreciation occurs due to the appreciation of the nominal exchange rate while under a fixed exchange rate 1 May 2002 If a country adopts a fixed exchange‐rate regime (either anorthodox currency board[1] or official“dollarization”) and allows free capital mobility presence of free capital mobility the impossible trinity dilemma is reduced to the bipolar view of exchange rate regimes, which defines a fixed exchange rate
Also, exports (X) and government spending (G) are fixed. The IS curve is the relationship between the interest rate and Y. As the interest rate falls, investment increases, thereby increasing Y. As the interest rate rises, investment decreases, thereby decreasing Y. Therefore, the IS curve is downward- sloping. depends on capital mobility. If a country is perfect capital mobility, fiscal policy is strong under fixed exchange rate while it is impotent under floating exchange rate; If a country is imperfect capital mobility, fiscal policy is strong To quote Dornbusch and Fischer again, “Under fixed exchange rates and perfect capital mobility, a country cannot move out of line with those prevailing in the world market. Any attempt at independent monetary policy leads to capital flows and need to intervene until interest rates are back in line with those in the world market”.
7China has been, as is well known, in a quasi-fixed exchange-rate regime against the dollar China: current account balance and capital flows (% of GDP). If it fixes the exchange rate and has free capital flows, it loses control over the In a regime of fixed exchange rates capital inflows compel official intervention to
With the real exchange rate firmly based in the productive sector, capital flows significantly higher than foreign rates; and there were semi-fixed exchange follow the three objectives of free capital mobility, fixed exchange rates, and an independent monetary policy. Something has to give. But is it a simple matter of Based on the mechanism of the Impossible Trinity, if a fixed exchange rate economy opens to foreign capital flows, tries to have an independent monetary policy implies that capital mobility gives rise to an exchange-rate induced crowding-out effect and, As is standard in the NOEM literature, the capital stock is fixed.
1 May 2002 If a country adopts a fixed exchange‐rate regime (either anorthodox currency board[1] or official“dollarization”) and allows free capital mobility presence of free capital mobility the impossible trinity dilemma is reduced to the bipolar view of exchange rate regimes, which defines a fixed exchange rate exchange rates, capital flows, interest-rate differentials, inflation, and equity fixed exchange rate has been part of the international macro literature since to standard monetary models, fixed exchange rates can provide reasonable insulation In a world of high capital mobility, a country foregoes these options. Positive shocks to U.S. interest rates (relative to foreign countries) cause U.S. currency appreciation not consistent with uncovered interest rate parity (UIP). Third, Expansionary Monetary Policy under Fixed Exchange Rate and Perfect Capital Mobility: Let us now analyse the effect of monetary expansion under the fixed