LEARNING OBJECTIVES
After you have read this section, you should be able to answer the following questions:
How does monetary policy operate in an open economy?
How does monetary policy in other countries influence the US economy?
Monetary policy has international implications as well. Changes in interest rates lead to changes in supply and demand in the foreign exchange market. [***Chapter 9 "Money: A User’s Guide" explains this connection.***] In turn, changes in exchange rates affect exports and imports and influence the overall demand for goods and services. Among other things, this means that the monetary policy of other countries will have an effect on your own country. So if you live in Europe, you are not immune to Federal Open Market Committee (FOMC) actions. And if you live in the United States, you are not immune to the actions of the European Central Bank (ECB).
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