北大金融学(英文版)第6章(3课时).ppt

CHAPTER 6 Government Policies toward the Foreign Exchange Market Why governments prone to intervene? To reduce the fluctuation of exchange rates: overshoot / international price competitiveness To protect certain groups’ benefits Why promoting depreciation? Why keeping the value of domestic currency high? Noneconomic goals: national pride Government Policies Toward the Foreign Exchange Market Two Aspects ? ·???Policy toward the level and variability of the (nominal spot) exchange rate. In simple terms, the choice between a floating exchange rate and a fixed exchange rate.—directly on price ? ·???Restrictions (if any) on the use of the foreign exchange market. These restrictions are generally called exchange controls.—directly on quantity Frame of Decisions on Exchange Rate Regimes Frame of Decisions on Access to Forex Market No restriction home currency’s fully convertible into foreign currencies Exchange control Extreme control cases Convertible for current account transactions +Capital controls Set limits for transactions related to specific types of imports Floating Exchange Rate Clean float: no official intervention Managed float or dirty float: with government attempting to influence the rate or intervention. Most governments that choose a floating system do manage the float. Fixed Exchange Rate The government sets the exchange rate where it wants. Also permits some flexibility Chosen fixed rate: par value (central value) Range for flexibility: band The flexibility is limited. Decisions for a Government That Has a Fixed Exchange Rate What to peg to? ·???? Gold (commodity standard) ·???? U.S. dollar or any other foreign currency ·???? A basket of foreign currencies SDR A basket including major trade partners’ currencies. SDR: A Basket of Currencies SDR: A Basket of Currencies Decisions for a Government That Has a Fixed Exchange Rate When to change the fixed rate? ·???? Never (not credible) ·???? Seldom (adjustable peg) ·???? Often (crawl