Working Paper: CEPR ID: DP266
Authors: Marcus H. Miller; John Williamson
Abstract: This is an exercise in the positive economics of alternative monetary regimes. The behaviour of output and prices is compared using a stochastic specification which allows asymptotic variances to be obtained without difficulty. Free floating of exchange rates together with national money supply targets is analysed first, with and without the presence of `fads' in the exchange rate. Two alternatives for monetary coordination are then considered. First, McKinnon's proposal to fix nominal exchange rates and stabilize aggregate monetary growth (or average inflation); second, Williamson's system of Target Zones for stable real exchange rates, complemented by nominal income targets for fiscal policy.
Keywords: international monetary regimes; international monetary reform; exchange rate systems; speculation
JEL Codes: 400; 430; 431; 432
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| floating exchange rates (F31) | fluctuations in real exchange rates (F31) |
| fluctuations in real exchange rates (F31) | prolonged deviations from equilibrium (D59) |
| floating exchange rates (F31) | price stability (E31) |
| fixed exchange rate regimes (F33) | lower inflation rates (E31) |
| target zones (R32) | stability of exchange rates (F31) |
| target zones (R32) | current account balances (F32) |
| monetary regime (E42) | macroeconomic stability (E60) |