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6 Adopting the Fixed Exchange Rate Regime during War On February 24, 2022, with Russia invading, the National Bank of Ukraine (NBU) acted decisively by
6 Adopting the Fixed Exchange Rate Regime during War On February 24, 2022, with Russia invading, the National Bank of Ukraine (NBU) acted decisively by imposing capital controls (e.g., preventing the purchase/sale of foreign currency) and switching from a flexible to a fixed exchange rate regime. a. (5 Points) Based on the policy trilemma, what powers does the NBU retain after switching from a flexible exchange rate regime? b. (5 Points) Does the Uncovered Interest Rate Parity (UIP) necessarily have to hold with capital controls? Explain why or why not. c. (10 Points) If capital controls are not binding and Ukrainian citizens are expected to move significant capital out, explain what NBU must do in order to maintain the fixed exchange rate. Use an AA-DD diagram to support your
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