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The Overvaluation of Sterling Since 1996: How the Policy makers Responded and Why

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  • David Cobham

Abstract

A large and sustained nominal appreciation in 1996-8 led to a serious and continuing overvaluation of sterling which has been associated with severe pressure on the manufacturing sector. The policy makers had difficulty in understanding past and forecasting future movements of sterling. They considered, but rejected, suggestions for foreign exchange market intervention and suggestions that interest rates should be set differently to reduce the overvaluation and relieve pressure on the tradable goods sector. One reason was that the exchange rate might react to such decisions in an erratic way. But if that is so the monetary framework needs to be revisited. Copyright 2006 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 512 (06)
Pages: F185-F207

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:512:p:f185-f207

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Cited by:
  1. Robin Pope, 2009. "Beggar-Thy-Neighbour Exchange Rate Regime Misadvice from Misapplications of Mundell (1961 ) and the Remedy," The World Economy, Wiley Blackwell, vol. 32(2), pages 326-350, 02.
  2. Ram Sharan Kharel & Christopher Martin & Costas Milas, 2010. "The Complex Response Of Monetary Policy To The Exchange Rate," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 103-117, 02.
  3. Riccardo DiCecio & Edward Nelson, 2010. "Euro Membership as a U.K. Monetary Policy Option: Results from a Structural Model," NBER Chapters, in: Europe and the Euro, pages 415-439 National Bureau of Economic Research, Inc.
  4. Robin Pope & Reinhard Selten & Johannes Kaiser & Sebastian Kube & Jürgen Hagen, 2012. "Exchange rate determination: a theory of the decisive role of central bank cooperation and conflict," International Economics and Economic Policy, Springer, vol. 9(1), pages 13-51, March.
  5. Robin Pope & Reinhard Selten & Sebastian Kube & Jürgen von Hagen, 2009. "Managed Floats to Damp Shocks like 1982-5 and 2006-9: Field and Laboratory Evidence for Chinese Interest in a Single World Currency," Bonn Econ Discussion Papers bgse26_2009, University of Bonn, Germany.

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