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The Dollar and the Policy Mix: 1985

  • Jeffrey Sachs
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    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
    Date of revision:
    Publication status: published as Sachs, Jeffrey D. "The Dollar And The Policy Mix: 1985," Brookings Papers, 1985, v16(1), 117-185.
    Handle: RePEc:nbr:nberwo:1636
    Note: EFG ITI IFM
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