The Effects Of The Fiscal And Monetary Policy On The Exchange Rate

Seminar paper from the year 2016 in the subject Economics - Macro-economics, general, grade: 2,3, University of applied sciences, Munich, language: English, abstract: The value of a nation’s currency and its exchange rate is a key indicator for the performance of an economy’s import and export. This assignment evaluates the different impacts of macroeconomic policies on the exchange rate, the following research also draws attention to the fact that economists have had mixed findings of the effects of macroeconomic policies on the exchange rate. The use of secondary research and the AA-DD model will further enhance the various factors that are responsible to appreciate or depreciate a currency. The results of this assignment show that; fixed and floating exchange rates, as well as the MPC score, have significant impacts on the efficiency of macroeconomic policies altering the exchange rate. Macroeconomic policies trigger disposable income, prices and interest rates within an economy, which consequently affects the foreign exchange market leading to a change in the exchange rate. Especially in the field of a floating exchange rate economy, the impacts of fiscal but also monetary policies can be shown, fixed exchange rates disable economies to use monetary policies due to the fact that these will with high certainty have an impact on the exchange rate.