Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence
This paper investigates the relation between the dynamics of inflation and international monetary and exchange rate regimes in the industrial economies. It demonstrates that fixed exchange rate regimes like the international gold standard and the Bretton Woods gold dollar standard appear to be associated with negligible persistence of inflation, while regimes of managed exchange rates are associated with very high persistence of inflation. The interwar period is associated with persistent deflation, and the more recent period of managed floating is associated with persistent inflation. The paper uses an overlapping contracts model to propose that the higher persistence of inflation is the result of a higher monetary and exchange rate accommodation of price changes in flexible exchange rate regimes. The evidence does not seem to contradict this hypothesis. The results highlight the importance of the effects of monetary regimes on expectations and the behaviour of wage- and price-setters.
|Date of creation:||Jan 1991|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:503. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.