The following is a question from a colleague of mine here at EWU who is working on a book about post-war macro policy mistakes and alternatives that might have worked better. He is currently working on the chapter on exchage rates, and is having trouble finding good sources on how, under different exchange rate regimes, a policy coulfd be used to "sterilize" the impact of changing exch. rates on the domestic economy. He has formulated the following question: Suppose the U.S. adopted a policy of intervening in currency markets to stall increases in the dollar by selling dollars and accumulating foreign reserves. At the same time it would attempt to sterilize the effect on the domestic economy by selling bonds to reduce any resulting increase in the money supply. What are the limits to this type of policy? There should be no limit on the availability of dollars since these can be generated by bond sales or the central bank. Is the only limit the availability of bonds in the central bank? One side-effect of this type of policy is that the cheaper dollar would be good for the current account. Are there other side-effects of this policy? Unless you think this is something the whole net is interested in, please respond directly to me. Thanks, Doug Orr [EMAIL PROTECTED]
