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Inflation and the Exchange Rate Regime

In: Flexible Exchange Rates and Stabilization Policy

Author

Listed:
  • W. Max Corden

    (Nuffield College)

Abstract

Is a regime of fixed or of flexible rates more conducive to inflation? In a flexible rate regime the authorities of each country can choose whatever rate of inflation they wish. In the fixed rate system countries can depart from the world rate of inflation by running payments imbalances and will trade-off the costs of accommodating borrowing or lending against the benefits from getting closer to their desired inflation rates; inflation rates are then determined in a general equilibrium system where countries “trade” their surpluses and deficits. “Inflation-prone” countries are distinguished from the “inflation-shy”. Account is also taken of the special case of the reserve currency country.

Suggested Citation

  • W. Max Corden, 1977. "Inflation and the Exchange Rate Regime," Palgrave Macmillan Books, in: Jan Herin & Assar Lindbeck & Johan Myhrman (ed.), Flexible Exchange Rates and Stabilization Policy, pages 238-251, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-03359-1_21
    DOI: 10.1007/978-1-349-03359-1_21
    as

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