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10: Policy Effects with Floating Exchange Rates

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    The effects of government policies on key macroeconomic variables are an important issue in international finance. The AA-DD model constructed in Chapter 9 "The AA-DD Model" is used in this chapter to analyze the effects of fiscal and monetary policy under a regime of floating exchange rates. The results are more comprehensive than the previous analyses of the same policies because they take into account all the between-market effects across the money market, the foreign exchange (Forex) market, and the goods and services (G&S) market.

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