I’m working on a economics question and need a sample draft to help me understand better.
Guyana is a country that uses the Guyana dollar (g). It has foreign reserves of $400 million. The government has issued $600 million worth of debt which is denominated in $US.
Assume Guyana discovers oil and, as a result, there is massive investment by SHELL oil company in extraction facilities. This is before any oil is exported.
If Guyana maintains a pegged exchange rate to the $US ($) at 200 g/$:
a. Are the direct central bank actions required to maintain the peg expansionary, contractionary, or neutral? Explain.
b. How and why might the Guyana Central Bank sterilize their intervention? Is there any “hard constraint” on their ability to do this?
