Final answer:
Lessard and Lorange suggest that exchange rate policies that do not distort control processes include both fixed and floating exchange rate systems if they are managed effectively to ensure stability. A fixed rate provides certainty, while a floating rate that focuses on inflation control and economic stability tends to fluctuate less and align with the economic conditions.
Step-by-step explanation:
According to Lessard and Lorange, the control process within the context of exchange rate management is not distorted when there are consistent policies such as either a fixed exchange rate system or a floating exchange rate regime that is supported by central bank policies aimed at stability. A fixed exchange rate system maintains consistent currency values against other currencies, reducing uncertainty and aiding in long-term planning. However, it limits the government's ability to adjust monetary policy for domestic economic stability. On the other hand, a floating exchange rate can fluctuate but tends to be less distorted if the central bank has a clear focus on managing inflation and avoiding recessions with steady interest rates. This allows for more flexibility in monetary policy but can introduce exchange rate volatility.
Under a fixed exchange rate regime, governmental interventions in the currency market maintain a set value of the currency, despite market supply and demand fluctuations. This can stimulate exports and control balance of payments deficits but can be problematic if the fixed rate does not reflect economic fundamentals. Conversely, under a floating system, if the central bank effectively controls inflation and recession risks, the exchange rates will have less reason to vary, aligning them more closely with economic realities without as much direct government manipulation.