How do alternative exchange rate regimes operate and how can they be identified?

Seminar paper from the year 2013 in the subject Economics - Foreign Trade Theory, Trade Policy, grade: 1,7, Johannes Gutenberg University Mainz, course: Seminar International Economic Policy, language: English, abstract: The choice of the exchange rate regime is essentially for a country. According to the

impossible trinity principle a country desires a fixed exchange rate, an autonomous

monetary policy and full capital mobility simultaneously. Unfortunately only two

features at the same time can be realized. A fixed exchange rate has two major

benefits compared to a floating exchange rate. If stable it makes the trade of goods

and assets between countries easier and less costly. Additionally a fixed exchange

rate may improve monetary policy discipline as expansionary monetary policy is

less available to maintain a fixed exchange rate. This may lead to a lower inflation

rate in the long run. But the major disadvantage is that a fixed exchange rate regime

removes the possibility to use monetary policy in a flexible way to deal with

recessions (Abel, Bernanke and Croushore, 2011). Therefore many countries

choose an exchange rate regime between both extreme cases (fixed or flexible

exchange rate regime). In the second chapter I will give some important theoretical

background concerning exchange rate regimes. In particular I will explain different

types of exchange rate regimes and show the difference between ¿de jure¿ and ¿de

factö exchange rate regimes. In the last part of the second chapter I will illustrate

the complex exchange rate regime of the European Union. In the third chapter I will

show the toolbox of a central bank to influence its exchange rate. In the last part of

the third chapter I will show briefly the different instruments using the example of

Switzerland in the recent past. In my conclusion I will try to answer the question

¿how can different exchange rate regimes being identified¿.