Monetary Accommodation, Conflicting Claims, and the European Monetary System

Richard Burdekin and Paul Burkett
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Paul Burkett: Indiana State University

Chapter 10 in Distributional Conflict and Inflation, 1996, pp 202-224 from Palgrave Macmillan

Abstract: Abstract The double-digit inflation of the 1970s has been followed by a prolonged period of disinflation in Europe. This disinflation began after the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) got underway in March 1979. Reminiscent of such episodes as those of Chile in 1982 and Mexico in 1994 that were discussed in the preceding chapter, however, the ERM system of pegged exchange rates unravelled in 1992–3 amidst rising unemployment and pressures for more accommodative policies. In this case, with German reunification leading to higher and higher German interest rates in the early-1990s, other ERM participants were forced to raise their own interest rates to maintain parity with Germany. The attempts to tighten in the midst of recession conditions were accompanied by rampant speculation against the weaker ERM currencies and losses of foreign exchange.

Keywords: Monetary Policy; Percent Level; Budget Deficit; Wage Growth; European Monetary System (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37173-6_11

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DOI: 10.1057/9780230371736_11

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