Purchasing Power Parity as a Rule for a Crawling Peg

Hans Genberg

Chapter 4 in Exchange Rate Rules, 1981, pp 88-110 from Palgrave Macmillan

Abstract: Abstract Purchasing power parity calculations can go a long way towards accounting for longer term movements in exchange rates. This fact has led to suggestions that purchasing power parity (hereafter PPP) be used as a measure of the long-run equilibrium level of exchange rates and, furthermore, that central banks manage exchange rates in such a way as to remove much of the observed short-run fluctuation around PPP. A particular version of such a policy would be the adoption of a crawling peg where the rate of crawl is determined to a large extent by PPP calculations. This paper analyses the desirability and likely success of such a policy.

Keywords: Exchange Rate; Monetary Policy; Central Bank; Price Level; Real Exchange Rate (search for similar items in EconPapers)
Date: 1981
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-05166-3_5

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DOI: 10.1007/978-1-349-05166-3_5

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