Credibility, inflation and coordination in the post-ERM period

Date

1994

Author

Özkan, Fatma Gülçin

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This paper formally analyses the alternative arrangements for monetary policy-making in the post-ERM period. The ERM as a fixed exchange rate regime is usually suggested for the high inflationary countries as a way of importing credibility from the Bundesbank which has a reputation for being very tough on inflation. This paper argues that the ERM is not the best mechanism for reducing inflation. The alternative suggested in this paper is monetary policy coordination which takes the form of creating a single central monetary authority (not a central bank) involved in joint monetary policy-making. This arrangement proves to be beneficial both in the short term and in the long term. Although it is mainly suggested for the high inflation countries of the system, it has stabilising effects for all participants.

URI

https://hdl.handle.net/11511/108234

Collections

Department of Economics, Article