Faces in making such monetary decisions

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Reference no: EM131101349

PROBLEM: Consider Denmark during the recent crisis that hit Europe. During this period, Denmark, like other European countries, faced the risk of a liquidity crisis. If such a crisis hits the economy, we know that one of the natural reactions of the Danish central bank would be to take measures to keep M1 from falling, deepening the recession. Explain the restraints that Denmark, with a fixed exchange rate regime, faces in making such monetary decisions. In particular, explain the market forces that keep Danish central bank from taking expansionary monetary measures during liquidity crises.

Reference no: EM131101349

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