Monetary economics Essay Example | Topics and Well Written Essays - 2250 words

Monetary economics - Essay modelingflow of chapiter can be supported with the example of Argentina which has experienced the floating flip ordinate in the economy and the volatility and the evolution of the exchange rate which was not affected badly due to the international crisis in spite of the rise or the increase in the exchange rate.The arguments in favour and against the topic can be highlighted with the help of the statement that emphasizes that floating exchange rate is telling in implementing the monetary policy and ineffective or inefficient in implementing the fiscal policy whereas in case of the fixed exchange rate it is effective in implementing the fiscal policy and it is unable or incapable for formulating the monetary policy.In order to derive at the conclusion in ascertaining whether the floating rate has been able to control the influx and outflow of cash it is required to consider various factors which includes the inflation rate, the believability of the pol icy makers, the flexibility in the labour market, the size and the openness in the economy, maintaining of capital mobility and the extent of monetary development.The main aim or the objective of floating exchange rate in controlling the inflow and the outflow of capital is reducing the volatility in the exchange rate and also maintaining the monetary perceptual constancy in the economy (Arnold, 2008). The floating exchange rate generally considers the economic and financial structure and policies in the economy and the intervention of the central bank in the foreign exchange market either relations in the spot market or relations in the forward market for developing the normal and reserves of the capital inflow and capital outflow. The floating exchange rate focuses on increasing the capital inflow and mitigating the excessive capital outflow. The balance of payment is considered as an important instrument for controlling and dealing with the related inflow and outflow of capi tal in the economy.Balance of payment is