Macroeconomics › Section P · Exchange rates and international capital flows › Topic P.4
Exchange rate policies
Every country must decide how much to let the market set the value of its money. The choices run from a free float to giving up a national currency altogether, and each one trades exchange-rate stability against control over interest rates.
In this topic
- A spectrum of choices
- Floating rates: freedom and volatility
- How a peg is defended
- Worked example: the cost of a peg
- Soft pegs and their risks
- Hard pegs and currency boards
- Speculative attacks
- The impossible trinity
- Worked example: the trilemma at work
- A merged currency
- Common mistakes to avoid
- Key takeaways
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