Us dollar and maintains free capital mobility

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Hong Kong's monetary authority fixes exchange rates against the US dollar and maintains free capital mobility. Assume that goods prices are sticky in the short run.

  1. Is the set of policies chosen by Hong Kong's monetary authority consistent with the Trilemma? Explain your reasoning.
  2. Suppose the European Central Bank reduces the euro interest rate for three months. Explain the impact of this policy on the Hon Kong dollar-euro exchange rate. Explain your reasoning.

Reference no: EM131866717

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