Dirty the Float and MP help! (1 Viewer)

[SGSII]

Hi guys
Would someone be able to help identify the limitations of "Dirtying the float" and Monetary policy in relations to exchange rates?
I cant seem to find any :S
Any help is good help,
Thanks

 

[starshine02]

Dirtying the float is limited to the size of the RBA's size of foreign currency holdings (which is less than one total day of transactions in the currency iirc) and it's generally only effective for a short period of time.

 

[kittystar]

Dirtying the float is limited to the size of the RBA's size of foreign currency holdings (which is less than one total day of transactions in the currency iirc) and it's generally only effective for a short period of time.

This ^

Also, in order to control inflation there needs to be an appreciation of the currency, however this appreciation will lead to lower international competitiveness and aggregate demand, thus leading to a contraction in the economy. Vice versa, if there needs to be a depreciation of the currency (Australia in the past 6 months), the cash rate will be lowered, however this will lead to higher inflation. There is always a trade-off between simultaneously achieving economic objectives

 

[kittystar]

Ohh and there is an impact time lag with monetary policy, so it doesn't always take effect straightaway

 

[Renegader]

Just to add, in reality, whatever the RBA does in an attempt to influence the exchange rate is very minimal. They cannot make it appreciate or depreciate; they can only mitigate or augment the intended change in the value of the currency. This is because 90% or so foreign exchange transactions are due to speculators so it's obvious that the RBA's limitation is that it has very little influence.

 

[SGSII]

Thanks you so much guys!