Topic 15 & 16 Flashcards
Sterilized Foreign Exchange Intervention
accompanied by offsetting domestic OMOs that leave monetary base changed
Unsterilized Foreign Exchange Intervention
bank allows monetary base to respond to sale/purchase of domestic currency in foreign exchange market
Intervention
deliberate action by the central bank to influence exchange rates
Balance of Payments
measures flow of private and gov’t funds between domestic and foreign country
Exchange Rate Regime
system for adjusting exchenge rates and flows of goods/capital among countried
Gold Standard
currencies are convertible into an amount of gold
Devaluation
lowering official value of currency
Revaluation
raising of official value of currency
Fixed Excahnge Rate System
ER set at determined level and maintained by gov’t
- Fiscal Policy more Effective
- expansionary policy will raise domestic IR, and force central bank to expand $$ supply
Flexible Exchange Rate System
ER is set by is determined in foreign exchange market
- Monetary Policy is More effective
- Lowers IR and ER which encourages exports and discourages imports
Cost of Inflation (if expected)
a. distortions due to nonindexation of taxes or existing contracts
b. economizing on money holdings may increase transactions costs
c. costs of changing prices
Cost of Inflation (if unexpected)
a. redistribution of income and wealth
b. confusion over relative price changes
Impact Lag
time it takes for policy to change economy
Recognition Lag
Time it takes for officials to realize that there is a problem
Implementation Lag
delay between an adverse macroeconomic event and the implementation of a corrective fiscal/monetary policy
