MGEC61H3 Lecture Notes - Lecture 19: Money Supply, Nash Equilibrium, Counterargument
9 Dec 2017
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Chapter 19: macroeconomic policy and coordination under floating exchange. Chapter 17: monetary policy is effective under flexible exchange rate (i. e. , Ms can be used to smooth out business cycles). Chapter 18: monetary policy is ineffective under fixed exchange rate (i. e. , changes in ms cannot affect output in the short run): country no longer has to import foreign monetary policy. Thus, country is free to choose its desired long-run inflation rate. Fixed exchange rate: ee = e = * Flexible exchange rate: ee does not necessary equal to e * Chapter 19: exchange rates as automatic stabilizers, flexible exchange rates allow less painful adjustment for shocks originated from the goods/output market, suppose autonomous consumption decreases temporarily: Chapter 19: money market disturbances, for shocks originated from the money market fixed exchange rate will stabilize output, suppose there is a temporary increase in the real demand for money: Ca = ca(q = ep*/p, y t, y* t*)
