Use a diagram like Figure to explain how a central bank can alter the domestic interest rate,
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Exchange rate, E Sterilized purchase of foreign assets 2 domestic-currency return on foreign- +₩ currency deposits,p(B-A2) R. + (Ee-E)/E + -AR) RE-EVE + p(B-A) Domestic interest rate, R LIR, Y) MS Real money supply Real domestic money holdings
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With imperfect asset substitutability a central bank can change the domestic interest rate wi...View the full answer
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Related Book For
International Economics Theory and Policy
ISBN: 978-0273754206
9th Edition
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
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