1. Lectures in Macroeconomics- Charles W. Upton Floating Pegs and Managed Floats

2. 2 The Basic Assumption D EB >S EB D EB <S EB

3. Floating Pegs and Managed Floats 3 Two Versions Floating Peg –The government maintains a fixed exchange rate, but it changes from time to time. –1 EB = $1 but over the year we will adjust the rate to 1EB = $0.95

4. Floating Pegs and Managed Floats 4 Two Versions Floating Peg Managed Float –The EB-Dollar rate floats but the government intervenes to keep it about 1EB = 1$

5. Floating Pegs and Managed Floats 5 Speculator Heaven Suppose D EB <S EB and the government tries to maintain an exchange rate. Remember the mantra of speculators: –Heads I win, tails you reimburse me for my losses. –George Soros.

6. Floating Pegs and Managed Floats 6 Speculator Heaven Suppose D EB <S EB and the government tries to maintain an exchange rate. Remember the mantra of speculators: –Heads I win, tails you reimburse me for my losses. –George Soros. A floating peg and a managed float presents exactly the same opportunities for the speculators.

7. Floating Pegs and Managed Floats 7 End ©2005 Charles W. Upton. All rights reserved