Using the Open Economic Monetary model, analyze the impact on the exchange rate on inflation and...

Using the Open Economic Monetary model, analyze the impact on the exchange rate on inflation and economic growth in the short and long term, if the Central Bank does not take any policy response? (case: the impact of COVID-19 on global financial market panic)

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Expert Solution

inflation do impact currency exchange rate however is one among other factor.Currency exchange rate is product of strength of any economy. It can impact trade,growth,inflation etc. Currency exchange rate is determined by market forces of supply and demand.However during high level of volatility central bank do intervene to control the market.

Rather than exchange rate purchasing power parity(PPP) comapares the capacity of different economy in general price level .If inflation equal in different economy then exchange rate do not change.

Asia,pacific seen drop in foreign exchange inflow in countries due to reduction in export earning, FDI,tourism remittances

COVID 19 has pushed global economy in reccession. IMF estimate of global economy growing at -3%in 2020.Developed economy (-6% growth rate ) has got hit harder than developing.Global central bank has injected $6trillion into financial market and reduced the interest rate near to zero

Rahul Sunny answered 2 years ago

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