摘要：The theory of exchange rate regimes does not provide clear cut preference as to which regimes should be preferred. Fixed and floating exchange rate regimes each has its own advantages and disadvantages. Under fixed exchange rates, the country’s export and service sector are stable because the businessmen need not worry about the fluctuation of the currency, and thereby influencing the amount of profit made. Moreover, without worry about the fluctuation of the value of the currency, businessmen can make beautiful enterprise to do business. The implication is that it creates muchneeded jobs and revenue for the country. In this paper we will prove theoretically that in short, fixed exchange rates can provide greater insulation of output in the face of nominal shocks. At the same time, floating exchange rates are better at absorbing real shocks.
关键词：Exchange rate;inflation;Lucas type of supply function;domestic credit;money supply;international reserves.
