Author Question: For a country pursuing a fixed exchange rate regime, what does the interest parity condition imply ... (Read 295 times)

jayhills49 · **on:** Jun 30, 2018

For a country pursuing a fixed exchange rate regime, what does the interest parity condition imply about domestic and foreign interest rates? Explain.

What will be an ideal response?

Question 2

For this question assume that technological progress does not occur. The rate of saving in Canada has generally been greater than the saving rate in the U.S. Given this information, we know that in the long run

A) Canada's growth rate will be greater than the U.S. growth rate.
B) investment per worker in Canada will be no different than U.S. investment per worker.
C) capital per worker in Canada will be no different than U.S. capital per worker.
D) all of the above
E) none of the above

deja · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

As long as the fixed exchange rate regime is credible, the interest rates must be equal. If the exchange rate regime is credible, we know that there will be no expected appreciation or depreciation so i = i.

Answer to Question 2

E