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§facto 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 .