Vicious and Virtuous Circles and the Optica Proposal: A Two-Country Analysis

Giorgio Basevi and Paul Grauwe

Chapter 7 in One Money for Europe, 1978, pp 144-163 from Palgrave Macmillan

Abstract: Abstract In a recent article we have tried to present the theory on which a proposal for managing exchange rates among countries of the European Community—the so-called OPTICA proposal—is based.1 Important limitations of our study resulted from the fact that the analysis was conducted in a one-country model and it was not explicitly made dynamic. Thus, at least two weak spots were left in the paper. First, we could only suggest the hypothesis, but not analyse it, that vicious and virtuous circles could reinforce or dampen each other when two countries were confronted. Secondly, we were—wrongly, as we shall show in this paper—induced to ‘prove’ that the OPTICA intervention guidelines could impede real adjustment when a country needed to let its terms of trade fall (its ‘real exchange rate’ rise). We were, therefore, admitting that the OPTICA proposal might be open, on this side, to criticism.2

Keywords: Exchange Rate; Home Country; Price Level; Real Exchange Rate; Money Supply (search for similar items in EconPapers)
Date: 1978
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-04308-8_7

Ordering information: This item can be ordered from
http://www.palgrave.com/9781349043088

DOI: 10.1007/978-1-349-04308-8_7

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().