文档介绍：International ary Theory and Policy, EC247/347 Week 10, Autumn 2003 International ary Theory and Policy, EC247/347 Week 10, Autumn 2003
Y
Output,
2
AA
1
DD AA
Stabilization Policies with a Fixed Exchange
Rate ective Under a Fixed
ff
• How can the government stabilize output and maintain 2
fixed exchange rate at the same time? Y
Exchange Rate
◦ 1
Previously we looked at how the government can Y
stabilize output if the exchange rate is flexible.
ary Expansion is Ine
E
2 0
rate,
E E
Exchange
Xavier Mateos-Planas and Akos´ Valentinyi 1 Xavier Mateos-Planas and Akos´ Valentinyi 2
International ary Theory and Policy, EC247/347 Week 10, Autumn 2003 International ary Theory and Policy, EC247/347 Week 10, Autumn 2003
ary Policy
Y
• Increase money supply to stimulate output.
2
Output, ⇒ Exchange rate is under depreciation pressure.
DD
2 ⇒ Money supply must be reduced to its original level.
AA
1
1
DD AA Fiscal Policy
3
3 • Fiscal expansion
Y
2 ⇒ Aggregate demand increases at any E,
2
Y ⇒ Output rises,
⇒ Excess demand for money,
1
1 ⇒ Upward pressure on R, and downward pressure
Y
on E,
⇒ Central bank increases money supply to keep
E = E0.
• Key fact 1:
Fiscal Expansion Under Fixed Exchange Rate
◦ ary policy is an ineffective tool of stabilization
E whereas fiscal policy is an effective one under fixed
0 2
rate,
E E
Exchange exchange rate regime.
Xavier Mateos-Planas and Akos´ Valentinyi 3 Xavier Mateos-Planas and Akos´ Valentinyi 4
International ary Theory and Policy, EC247/347 Week 10, Autumn 2003 International ary Theory and Policy, EC247/347 Week 10, Autumn 2003
Changes in the Exchange Rate Fixing the Exchange Rate to Escape from Liquidity
Trap
• Central bank changes the fixed exchange rate:
• Liquidity trap
◦ Devaluation: E is raised.
◦ Revaluation: E is lowered. ◦ ary policy cannot stimulate the economy by
incrasing the money supply (liquidity).
• Suppose that E0