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International Finance Discussion Papers: The Impact of Monetary Policy on Exchange Rates During Financial Crises
International Finance Discussion Papers The Impact of Monetary Policy on Exchange Rates During Financial Crises Author:David Gould, Steven Kamin This paper addresses the impact of monetary policy on exchange rates during financial crises. Some observers have argued that a tightening of monetary policy is necessary to stabilize the exchange rate, restore confidence, and lay the groundwork for an eventual recovery of economic activity. Others have argued that by raising interest rates (whi... more »ch reduces the ability of borrowers to repay loans and thereby weakens the banking system), tightening may further reduce investor confidence and lead to further weakening--not strengthening--of domestic currencies.« less