Economics - Exchange rate

In case of expansionary monetary policy with fixed exchange rate…monetary authority buys its own currency in FX market to keep exchange rate from depreciating. But how it tightens the domestic credit condition? Please explain.

No, the monetary authority does not buy its own currency (it contradicts the expansionary monetary policy, isn’t it?). Instead, this authority sells foreign currencies to the market. Higher quantity of foreign currencies in the market, makes the local currency to appreciate (or prevent from depreciating). This strategy to be possible, the central bank must hold plentiful quantities of international reserves (foreign currencies) and its proportion to market be reasonable.

Fixed-exchange rate policies are not suitable for big markets.

In an expansionary monetary policy, domestic credit should expand, not to tighten.

Buying your own currency with foreign currency(selling foreign currency) aren’t the same thing?

And it tightens domestic credit condition. Please check the book.

Not necessarily correct. In a market there could be more than 1 foreign currency, so you could not necessarily buy your own currency when selling a foreign one. Also, the mechanic is not buying your own currency, but selling foreign currencies (in this policy, fixed rate).

It tightens because of the special case of Fixed Rate. But an expansionary policy itself looks for loose credit conditions. Again, fixed exchange rate objectives are silly because the monetary authority ends up changing its first intentions in order to keep the exchange rate fixed. The book is correct thought.