(国际经济学英文课件)ch17Fixed Exchange Rates and Foreign Exchange Intervention.ppt

Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Preview Balance sheets of central banks Intervention in the foreign exchange markets and the money supply How the central bank fixes the exchange rate Monetary and fiscal policies under fixed exchange rates Financial market crises and capital flight Types of fixed exchange rates: reserve currency and gold standard systems Zero interest rates, deflation, and liquidity traps Introduction Many countries try to fix or “peg” their exchange rate to a currency or group of currencies by intervening in the foreign exchange markets. Many with a flexible or “floating” exchange rate in fact practice a managed floating exchange rate. The central bank “manages” the exchange rate from time to time by buying and selling currency and assets, especially in periods of exchange rate volatility. How do central banks intervene in the foreign exchange markets? Central Bank Intervention and the Money Supply To study the effects of central bank intervention in the foreign exchange markets, first construct a simplified balance sheet for the central bank. This records the assets and liabilities of a central bank. Balance sheets use double booking keeping: each transaction enters the balance sheet twice. Central Bank’s Balance Sheet Assets Foreign government bonds (official international reserves) Gold (official international reserves) Domestic government bonds Loans to domestic banks (called discount loans in US) Liabilities Deposits of domestic banks Currency in circulation (previously central banks had to give up gold when citizens brought currency to exchange) Central Bank’s Balance Sheet (cont.) Assets = Liabilities + Net worth If we assume that net worth is constant, then An increase in assets leads to an equal increase in liabilities. A decrease in assets leads to an equal decrease in liabilities. Changes in the central bank’s balance sheet lead to changes in currency in circulation or changes in deposits of banks,