Re: "pizazzy" exchange rates

[Jim Devine <JNDF%LMUACAD.BITNET@xxxxxxxxxxxxxxxxx>]

On Wed, 26 Apr 1995 16:41:20 -0600 RICHARD P.F. HOLT said:
>Referring to the Mundell-Fleming model, the policy effects of the model
>are dependent upon whether you have fixed or floating exchange rates.
>Since in the US we follow a model of floating exchange rates, monetary
>expansion will lead to a lowering of the exchange rate, increase in
>exports and higher national income. If you follow a model of fixed
>exchange rates then monetary expansion has no effect and you must
>rely on fiscal expansion or import restrictions.

Isn't this only true if the interest rate in the rest of the world
is constant?  In the case of fixed exchange rates, monetary
expansion could cause interest rates elsewhere to fall, if the
country doing the expansion is large enough.

Also, does Europe really follow the EMS these days? Even if
they do, don't exchange rates still float vis-a-vis the
US and Japan?

sincerely,

Jim Devine
jndf@xxxxxxxxxxxxxx or jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950