When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base,it is called

Question

Quizplus · Accepted Answer

An unsterilized foreign exchange intervention refers to the central bank allowing the purchase or sale of domestic currency to affect the monetary base. In this case, there is no offsetting transaction to neutralize the impact on the money supply. This can potentially impact domestic interest rates and inflation.

B) A sterilized foreign exchange intervention refers to the central bank conducting an offsetting transaction, such as buying or selling government bonds, to neutralize the impact of the foreign exchange intervention on the money supply.

C) An exchange rate feedback rule is a monetary policy rule where the central bank adjusts interest rates according to deviations in the exchange rate from a target level.

D) A money neutral foreign exchange intervention refers to the central bank conducting an intervention that has no impact on the money supply, such as buying or selling foreign currency in exchange for domestic currency.

When the Central Bank Allows the Purchase or Sale of Domestic