Economics, Econometrics and Finance
4 years ago

Countries Maintain Monetary Independence Despite Pegged Exchange Rates.

Journal of money credit and banking
Short-Run Independence of Monetary Policy under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates
Lee E. Ohanian, Alan C. Stockman

Paper Summary

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Countries can maintain some control over their monetary policy even when they peg their exchange rates. Changes in money supply affect exchange rates, interest rates, and production in complex ways. The model used in the study shows that these effects are not straightforward and can vary between countries. This means that countries can still make some independent decisions about their monetary policy, even if their exchange rates are fixed.