Monetary Policy Under Fixed and Floating Exchange Rates

This chapter discusses monetary policy, and focuses on the difference between fixed and floating exchange rates. It begins by explaining the role that a central bank plays in maintaining its exchange rate via foreign bonds, and goes on to explain money supply increases under fixed exchange rates and exchange rate fluctuations over a period of 40 years. This is done using a long thought experiment with multiple examples of possible scenarios. There is a discussion of international reserves and foresting exchange rates as well.

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