Monetary Policy and the Economy

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…of reasons, especially over short periods, and the Federal Reserve must exercise considerable caution in interpreting and re-acting to their fluctuations. Foreign Exchange Rates Exchange rate movements are an important channel through which monetary policy affects the economy, and they tend to respond promptly to a change in the provision of reserves and in interest rates. Information on exchange rates, like that on interest rates, is available almost continuously throughout each day. Interpreting the m