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An assessment of the economic impact of COVID 19 on the Australian economy – an International...

An assessment of the economic impact of COVID 19 on the Australian economy – an International Macroeconomic perspective.

  • Choice of exchange rate regime – would Australia be in a better position if it had a fixed exchange rate?
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No !! Australia will not be in a better position if they have a fixed exchange rate system. At the time of covid 19 the deamand across the world is low and to make things more competetive the price has to be lowered. One way to make the goods more competitive and reduce the price is to allow the currency to depreciate and that will increase the demand for the goods in the international market.

If there is a fixed exchange rate in the market, the imports will rise and that will also reduce the demand for the local goods, a fixed exchange rate system will also make the monetary policy ineffective and central bank in Australia will not be able to do anything to raise the demand in the market making the recovery from this pandemic longer and painful and overly dependent on the fiscal policy.

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