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Macroeconomics 3

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Updated 2006-10-28 00:38

Section IX

Question Answer
Pegged Exchange Ratesa type of exchange rate regime wherein a currency's value is matched to the value of another single currency (most often the US Dollar), to a basket of other currencies, or to another measure of value, such as gold.
Why do countries Peg their exchange rates?- Make the cost of their goods lower for foreigners.
- Increase investor confidence and avoid original sin which can lead to a currency mismatch.
Dirty FloatFloating a currency when the rate is controlled by intervention by the monetary authorities.
Currency Union A situation where several countries have agreed to share a single currency among them, for example, the Euro
Dollarization Phenomenon that occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency.
Okun's LawGDP and unemployment are inversely related
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