Under a flexible exchange rate regime, governments can retain monetary policy independence because the external balance will be achieved by

Question

Quizplus · Accepted Answer

Under a flexible exchange rate regime, the exchange rate adjustments will ensure that the external balance is achieved without the need for government intervention. This allows governments to retain monetary policy independence as they do not need to use monetary policy instruments to manipulate the exchange rate. The price-specie flow mechanism and the Triffin paradox, while relevant to exchange rate systems, do not directly relate to the retention of monetary policy independence.

Under a Flexible Exchange Rate Regime, Governments Can Retain Monetary