Float-rate regime against non-euro currencies, International Economics

Q. Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market disturbances will no longer affect domestic output despite the continuation of float-rate regime against non-euro currencies.

Answer: Because Norway's interest rate should equal the euro interest rate any pure shifts in the AA curve will result in immediate reserve outflows or inflows that leave Norway's interest rate unchanged.

Posted Date: 6/29/2013 3:06:15 AM | Location : United States







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