IDEAS home Printed from https://ideas.repec.org/p/erp/kfgxxx/p0047.html
   My bibliography  Save this paper

The Consolidation of the Anglo-Saxon/European Consensus on Price Stability - From International Coordination to a Rule-Based Monetary Regime

Author

Listed:
  • Arie Krampf

Abstract

During the 1990s, a consensus consolidated among policy makers and economists worldwide regarding the desirability of very low inflation targeting. So far, this process has been explained on the basis of a domestic-functional thesis, according to which commitment to very low inflation provides local economic gains with no costs. In this paper, I present an alternative explanation, according to which the global norm of very low inflation targeting was consolidated as a political solution to the problem of exchange rate misalignment and volatility. I argue that policy makers in Germany and the US believed that convergence of monetary policies and inflation rates, in addition to liberalization of financial markets, will stabilize exchange rates without the need for direct coordination. The paper employs the theory of liberal intergovernmentalism as a benchmark to explain the choice of the European and the G-5/7 countries to establish a low-inflation rule-based international monetary regime. The paper concludes that the regime of very low inflation targeting was consolidated as a politically viable solution to a political problem rather than as an economic best practice. Furthermore, it concludes that the norm of very low inflation targeting was a corer solution that neglected the problem of exchange rate stability.

Suggested Citation

  • Arie Krampf, 2012. "The Consolidation of the Anglo-Saxon/European Consensus on Price Stability - From International Coordination to a Rule-Based Monetary Regime," KFG Working Papers p0047, Free University Berlin.
    • Handle: RePEc:erp:kfgxxx:p0047
    as

    Download full text from publisher

    File URL: http://userpage.fu-berlin.de/kfgeu/kfgwp/wpseries/WorkingPaperKFG_47.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stanley Fischer, 1987. "International Macroeconomic Policy Coordination," NBER Working Papers 2244, National Bureau of Economic Research, Inc.
    2. Moravcsik, Andrew, 1991. "Negotiating the Single European Act: national interests and conventional statecraft in the European Community," International Organization, Cambridge University Press, vol. 45(1), pages 19-56, January.
    3. Bankim Chadha & Paul R. Masson & Guy Meredith, 2019. "Models of Inflation and the Costs of Disinflation," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 3, pages 57-99, World Scientific Publishing Co. Pte. Ltd..
    4. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 47-68, Fall.
    5. Mr. Andrew Crockett & Mr. Morris Goldstein, 1987. "Strengthening the International Monetary System: Exchange Rates, Surveillance, and Objective Indicators," IMF Occasional Papers 1987/001, International Monetary Fund.
    6. Jacob A. Frenkel, 1983. "Exchange Rates and International Macroeconomics," NBER Books, National Bureau of Economic Research, Inc, number fren83-1, March.
    7. Nicoletta Batini & Douglas Laxton, 2007. "Under What Conditions Can Inflation Targeting Be Adopted? The Experience of Emerging Markets," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 12, pages 467-506, Central Bank of Chile.
    8. Haas, Peter M., 1992. "Introduction: epistemic communities and international policy coordination," International Organization, Cambridge University Press, vol. 46(1), pages 1-35, January.
    9. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    10. Cobham,David & Eitrheim,Øyvind & Gerlach,Stefan & Qvigstad,Jan F. (ed.), 2010. "Twenty Years of Inflation Targeting," Cambridge Books, Cambridge University Press, number 9780521768184.
    11. William H. Branson & Jacob A. Frenkel & Morris Goldstein, 1990. "International Policy Coordination and Exchange Rate Fluctuations," NBER Books, National Bureau of Economic Research, Inc, number bran90-1, March.
    12. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
    13. Dyson, Kenneth & Featherstone, Kevin, 1999. "The Road To Maastricht: Negotiating Economic and Monetary Union," OUP Catalogue, Oxford University Press, number 9780198296386, Decembrie.
    14. William J. McDonough, 1997. "A framework for the pursuit of price stability," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Aug), pages 1-7.
    15. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    16. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346, October.
    17. Amy Verdun, 2010. "Ten years EMU: an assessment of ten critical claims," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 2(1/2), pages 144-163.
    18. Putnam, Robert D., 1988. "Diplomacy and domestic politics: the logic of two-level games," International Organization, Cambridge University Press, vol. 42(3), pages 427-460, July.
    19. Morris Goldstein, 1995. "Exchange Rate System and the IMF: A Modest Agenda, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa39, October.
    20. Vines,David & Gilbert,Christopher L. (ed.), 2004. "The IMF and its Critics," Cambridge Books, Cambridge University Press, number 9780521821544.
    21. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    22. Jacob A. Frenkel, 1983. "An Introduction to Exchange Rates and International Macroeconomics," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 1-18, National Bureau of Economic Research, Inc.
    23. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 1989. "International dimensions of monetary policy: coordination versus autonomy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 183-243.
    24. Mr. Kenneth Rogoff, 2002. "Dornbusch’s Overshooting Model After Twenty-Five Years," IMF Working Papers 2002/039, International Monetary Fund.
    25. Mr. Paul R Masson & Mr. Morris Goldstein & Mr. Jacob A. Frenkel, 1991. "Characteristics of a Successful Exchange Rate System," IMF Occasional Papers 1991/013, International Monetary Fund.
    26. Feldstein, Martin S, 1988. "Distinguished Lecture on Economics in Government: Thinking about International Economic Coordination," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 3-13, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philipp F. M. Baumann & Enzo Rossi & Alexander Volkmann, 2020. "What Drives Inflation and How: Evidence from Additive Mixed Models Selected by cAIC," Papers 2006.06274, arXiv.org, revised Aug 2022.
    2. Marek Mičúch, 2009. "Vývoj teorie parity kupní síly a rovnovážný měnový kurz [Purchasing power parity and the equilibrium exchange rate]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(3), pages 405-428.
    3. Thomas Willett, 1999. "Developments in the Political Economy of Policy Coordination," Open Economies Review, Springer, vol. 10(2), pages 221-253, May.
    4. Issing, Otmar, 2012. "Central banks: Paradise lost," CFS Working Paper Series 2012/06, Center for Financial Studies (CFS).
    5. Lucotte, Yannick, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," MPRA Paper 27118, University Library of Munich, Germany.
    6. Alesina, Alberto & Stella, Andrea, 2010. "The Politics of Monetary Policy," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 18, pages 1001-1054, Elsevier.
    7. Peter Mooslechner & Martin Schuerz, 1999. "International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 171-199, September.
    8. Giorgio Canarella & Stephen M. Miller, 2016. "Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US," Working papers 2016-11, University of Connecticut, Department of Economics.
    9. Heipertz, Martin & Verdun, Amy, 2003. "The dog that would never bite? The past and future of the Stability and Growth Pact," MPIfG Working Paper 03/12, Max Planck Institute for the Study of Societies.
    10. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
    11. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093.
    12. Yannick LUCOTTE, 2010. "The Choice of Adopting Inflation Targeting in Emerging Economies: Do Domestic Institutions Matter?," LEO Working Papers / DR LEO 1561, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    13. Otmar Issing, 2012. "The Mayekawa Lecture: Central Banks-Paradise Lost," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 30, pages 55-74, November.
    14. Giorgio Canarella & Stephen M Miller, 2017. "Inflation Persistence Before and After Inflation Targeting: A Fractional Integration Approach," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 78-103, January.
    15. Christos J. Paraskevopoulos, 2017. "Varieties of capitalism, quality of government, and policy conditionality in Southern Europe:Greece and Portugal in comparative perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 117, Hellenic Observatory, LSE.
    16. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    17. Koichi Hamada, 1998. "The Choice of International Monetary Regimes in a Context of Repeated Games," Open Economies Review, Springer, vol. 9(1), pages 417-446, January.
    18. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    19. Eichengreen, Barry & Ghironi, Fabio, 1997. "European Monetary Unification and International Monetary Cooperation," Center for International and Development Economics Research, Working Paper Series qt10d518tg, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    20. Eijffinger, S.C.W. & Schaling, E., 1995. "Optimal commitment in an open economy : Credibility vs. flexibility," Discussion Paper 1995-79, Tilburg University, Center for Economic Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erp:kfgxxx:p0047. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sasan ABDI (email available below). General contact details of provider: http://www.transformeurope.eu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.