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The Dollar and the Policy Mix: 1985

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Author Info
Jeffrey Sachs
Abstract

In 1971, Robert Mundell proposed a stunning solution to the three problems then affecting the U.S. economy: high inflation and unemployment, and a weak currency. Mundell suggested that the policy mix of fiscal expansion and monetary contraction could work to raise output, reduce inflation, and strengthen the currency at the same time. This policy mix has been pursued under the Reagan administration since 1981. The paper investigates the contributions of this policy mix to disinflation and output growth. It finds that the policy mix has contributed as much as three percentage points of the reduction in inflation during 1981-84, but that the gains against inflation due to the mix will likely be lost, or more than lost, in the future.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1636.

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Date of creation: Jun 1985
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Publication status: published as Sachs, Jeffrey D. "The Dollar And The Policy Mix: 1985," Brookings Papers, 1985, v16(1), 117-185. Recent Developments in Macroeconomics, Phelps, Edmund, ed.: Edward Elgar Publishing, Glasgow.
Handle: RePEc:nbr:nberwo:1636

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  1. Allen Sinai, 1985. "The Dollar and Inflation," Eastern Economic Journal, Palgrave Macmillan Journals, vol. 11(3), pages 211-220, Jul-Sep. [Downloadable!] (restricted)
  2. Jeffrey A. Frankel, 1994. "The Making of Exchange Rate Policy in the 1980s," NBER Working Papers 3539, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Adrian Blundell-Wignall & Frank Browne, 1992. "Real Exchange Rates and the Globalisation of Financial Markets," RBA Research Discussion Papers rdp9203, Reserve Bank of Australia. [Downloadable!]
  4. Allen Sinai, 1985. "The Dollar and Inflation," Eastern Economic Journal, Eastern Economic Association, vol. 11(3), pages 211-220, Jul-Sep. [Downloadable!]
  5. Martin Feldstein, 1989. "The Budget Deficit and the Dollar," NBER Working Papers 1898, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Vuslat Us & Kývýlcým Metin Ozcan, 2003. "Optimal Univariate Expectations under High and Persistent Inflation : New Evidence From Turkey," Working Papers 2003/4, Turkish Economic Association. [Downloadable!]
  7. Benjamin M. Friedman, 1989. "Lessons On Monetary Policy From The 1980's," NBER Working Papers 2551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Adrian Orr & Alasdair Scott & Bruce White, 1998. "The exchange rate and inflation targeting," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, September. [Downloadable!]
  9. Alberto Giovannini, 1988. "The Macroeconomics of Exchange-rate and Price-level Interactions: Empirical Evidence for West Germany," NBER Working Papers 2544, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Christopher J. Erceg & Andrew T. Levin, 2001. "Imperfect credibility and inflation persistence," Finance and Economics Discussion Series 2001-45, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  11. Frankel, Jeffrey & Roubini, Nouriel, 2002. "The Role of Industrial Country Policies in Emerging Market Crises," Working Paper Series rwp02-002, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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  12. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Robert Tchaidze, 2002. "Greenspan and the Greenbook," Economics Working Paper Archive 472, The Johns Hopkins University,Department of Economics. [Downloadable!]
  14. John Y. Campbell & Richard H. Clarida, 1988. "The Dollar and Real Interest Rates," NBER Working Papers 2151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Willem H. Buiter, 1987. "Macroeconomic Policy Design in an Interdependent World Economy: An Analysis of Three Contingencies," NBER Working Papers 1746, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Rudiger Dornbusch, 1987. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Adrian W. Throop, 1989. "Fiscal policy, the dollar, and international trade: a synthesis of two views," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 27-44. [Downloadable!]
  18. Martin Feldstein & Douglas W. Elmendorf, 1989. "Budget Deficits, Tax Incentives and Inflation: A Surprising Lesson From The 1983-84 Recovery," NBER Working Papers 2819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Martin Feldstein, 1986. "U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle," NBER Working Papers 1790, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Thomas Jordan, 1997. "Disinflation costs, accelerating inflation gains, and central bank independence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(1), pages 1-21, March. [Downloadable!] (restricted)
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