This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Explain why after, say Norway unilaterally pegs the krone to the euro, domestic money market ... (Read 31 times)

lindiwe

  • Hero Member
  • *****
  • Posts: 577
on: Jun 30, 2018
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.
 
  What will be an ideal response?

Question 2

Explain why when Norway unilaterally fixes its exchange rate against the euro but leaves the krone free to float against the non-euro currencies, it is unable to keep at least some monetary independence.
 
  What will be an ideal response?


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

lkoler

  • Sr. Member
  • ****
  • Posts: 358
Reply #1 on: Jun 30, 2018
Answer to Question 1

Because Norway's interest rate must equal the euro interest rate, any pure shifts in the AA curve (see chapter 19 ) will result in immediate reserve inflows or outflows that leave Norway's interest rate unchanged.

Answer to Question 2

Any independent money supply change in Norway would put pressure on krone interest rates and thus on the krone/euro exchange rate. So by pegging the krone even to a single foreign currency, Norway completely surrenders its domestic monetary control.


lindiwe

  • Hero Member
  • *****
  • Posts: 577
Reply #2 on: Jun 30, 2018
Correct answers!


lkoler

  • Sr. Member
  • ****
  • Posts: 358
Reply #3 on: Jun 30, 2018
Great! Please up vote :D


« previous next »
 

Did you know?

Medications that are definitely not safe to take when breastfeeding include radioactive drugs, antimetabolites, some cancer (chemotherapy) agents, bromocriptine, ergotamine, methotrexate, and cyclosporine.

Did you know?

Chronic marijuana use can damage the white blood cells and reduce the immune system's ability to respond to disease by as much as 40%. Without a strong immune system, the body is vulnerable to all kinds of degenerative and infectious diseases.

Did you know?

As many as 20% of Americans have been infected by the fungus known as Histoplasmosis. While most people are asymptomatic or only have slight symptoms, infection can progress to a rapid and potentially fatal superinfection.

Did you know?

More than 20 million Americans cite use of marijuana within the past 30 days, according to the National Survey on Drug Use and Health (NSDUH). More than 8 million admit to using it almost every day.

Did you know?

To combat osteoporosis, changes in lifestyle and diet are recommended. At-risk patients should include 1,200 to 1,500 mg of calcium daily either via dietary means or with supplements.

Domestic cat Domestic cat
Wild boar/domestic pig hybrid, displayed at Rothschild Museum, Tring, England Wild boar/domestic pig hybrid, displayed at Rothschild Museum, Tring, England
Mechanisms to Explain the Effects of Massage Mechanisms to Explain the Effects of Massage
Plan of Trajan's Forum and Market "خطة منتدى ترجان والسوق" Plan of Trajan's Forum and Market "خطة منتدى ترجان والسوق"
Explain how it can be desirable from an intertemporal perspective for a country run a current ... Explain how it can be desirable from an intertemporal perspective for a country run a current ...
Hen feathering (left) and cock feathering (right) in domestic fowl Hen feathering (left) and cock feathering (right) in domestic fowl
Video: Rods and Cones Animation

For a complete list of videos, visit our video library