How does QE2 lead to Depreciation of Currency- MacroEcon here?
Hey all, its been in the news that with the Fed planning on QE2, it will lead to a depreciation of dollar, hence the reason why emerging markets are imposing capital controls. Can anybody please share their insight on how does Qe2 lead to US dollar depreciation?
My understanding is that as the Fed buys government bonds from the public, it leads to a an increase in the supply of money in the economy. People spend more , and price level increases. Imported goods become more attractive the way since they are cheaper, so ppl supply more US dollars in the economy, which depreciates the dollar. does anyone agree with my analysis? I dont understand how does imposing capital control help the emerging markets, and what do they mean by capital controls?
Please help!! Thanks guys