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Counter-Inflationary Policy in the Framework of the EMS

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  • Artis, Michael J

Abstract

The conditions of the `new EMS' - an absence of exchange rate realignments and corresponding added credibility - have given rise to concern about the stabilization properties of the System. Nominal interest rate divergence may have been narrowed ahead of inflation divergence. Cross-country real interest rankings would then assume a negative correlation with the corresponding inflation rankings. The paper argues that on theoretical grounds, a perverse correlation between real interest rates and inflation can be predicted for `old EMS' conditions. Empirical evidence supports this prediction while failing to confirm it for the `new EMS'.

Suggested Citation

  • Artis, Michael J, 1992. "Counter-Inflationary Policy in the Framework of the EMS," CEPR Discussion Papers 649, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:649
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    More about this item

    Keywords

    European Monetary System; Inflation; Real Interest Rates;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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