Wk8 Flashcards
How many a central bank intervene?
They purchased domestic currency and sell corresponding for an assets in the foreign exchange market, which leads to an equal decline in the international reserves and the monetary base
How do you calculate money base?
International reserves plus money in circulation
What happens when the bank sells domestic currency?
And equal rise, and it’s international reserves and monetary base 
What is an unsterilised foreign exchange intervention?
When domestic currency is sold to purchase for an assets lead leads to gain in international reserves, an increase in the money supply and a depreciation of the domestic currency
What does a graph do during an unsterilised purchase of dollars and the sale of foreign assets? 
It decreases the monetary base and money supply, raising domestic interest rates, shifting demand to the right leading to arise in exchange rate 
What is sterilised foreign exchange intervention?
The Fed does it to offset (operation, and there is no effect on the monetary base or the exchange rate 
What is gold standard?
– Fixed exchange rates
– No control over monetary policy
– Influenced heavily by production of good gold and gold discoveries 
What is Breton woods system
-
How was the gold standard effected by gold discoversies
Low gold - deflation
High gold - inflation
What is the Breton woods system
Set up imf
Different from the gold standard
How does the Breton wood system work
ER adjusted when they had large and persistent deficits in the BOP
-Loans from IMF to cover loss in international reserves
- imf encouraged contractionary monetary policies
- devaluation only if IMF loans were not sufficient
- no tools for surplus countries
- U.S could not devalue currency
What happens when domestic currency is overvalued?
- The central bank must purchase domestic currency to keep the exchange rate fixed, but it loses international reserves 
- conduct a reevaluation
And vice versa 
What does the graph for overvaluation look like in a fixed exchange rate regime

To shift the demand cover to the right central bank must purchase domestic currency 
What happens if a country runs out of international reserves? 
 devaluation will happen at lower exchange rate
What is in the policy trilema
- free, capital mobility
– Fix exchange rate
– Independent monetary policy 
Cannot operate at the same time - only 2/3
