Political Science 2211E Study Guide - Final Guide: European System Of Central Banks, Impossible Trinity, Floating Exchange Rate
4 Apr 2020
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Its useful because it allows governments to fight recessions and to maintain a sustainable balance very low inflation and very low unemployment. In the decades leading up to the great depression, barring a brief interval during the first world. War, governments opted for capital mobility and fixed exchange rates at the expense of discretionary monetary policy. After wwii, the emphasis was on giving up capital mobility to allow governments to pursue both fixed exchange rates and discretionary monetary policy. Today, capital and exchange controls have fallen out of fashion. Most countries have once again promoted capital mobility, forcing them to choose between a fixed exchange rate and discretion over monetary policy. Economists support the idea that they need to retain discretion over monetary policy because governments need the power to fight recessions and to respond to economic shocks. Asian crisis with the falling dollar rather than with the painful slowdown in economic growth.
