International Monetary Policy to Promote Economic Recovery
The paper studies the design of efficient anti-inflationary policies in a two-country interdependent economic system. A number of alternative specifications of the price formation process are considered, incorporating successively higher degrees of price level and inflation inertia. The credibility of current announcements of future monetary policy is a necessary and sufficient condition for costless, immediate disinflation only in the classical flexible price level model with forward-looking rational expectations. If price level inertia prevails, a costless and immediate disinflation by means of a deceleration of the money growth rate must be accompanied by nominal money 'jumps' or cost-reducing tax cuts in order to accommodate the fall in velocity that follows the disinflation. With a sluggish price level and sluggish core inflation, tax cuts (or incomes policy) are necessary for costless disinflation. In general, the elimination of inflation can only be gradual. With real balance effects on demand, unilateral disinflationary policy always 'spills over' through real interest rates and the real exchange rate. These real balance effects are necessary for the presence of spillovers only in the classical model. Cooperative policy design effectively leaves the national authorities with the same scope for influencing domestic target variables that they would have had in a closed economy.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 1985|
|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: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mussa, Michael, 1981. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review, American Economic Association, vol. 71(5), pages 1020-27, December.
- Buiter, Willem H & Miller, Marcus, 1981. "Monetary Policy and International Competitiveness: The Problems of Adjustment," Oxford Economic Papers, Oxford University Press, vol. 33(0), pages 143-75, Supplemen.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:55. 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: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.