Previous time-series studies have shown evidence of mean-reversion in real exchange rates. Deviations from purchasing power parity (PPP) appear to have half-lives of approximately four years. The long samples required for statistical significance are unavailable for most currencies, however, and...

The conditions of the `new EMS' - an absence of exchange rate realignments and corresponding added credibility - have given rise to concern about the stabilization properties of the System. Nominal interest rate divergence may have been narrowed ahead of inflation divergence. Cross-country real...

We set out a reference chronology for annual UK inflation, identifying nine complete cycles between 1958 and 1990. Inflation over this period is asymmetric, falling more quickly than it rises. Leading indicators are also proposed, with composite shorter and longer leading indicators constructed....

The paper presents various tests of the hypothesis that, through the mechanism of the European Monetary System. Germany exercised a counter-inflationary leadership role in the 1980s. Evidence is provided that expectations of German inflation may be thought of as having impacted more strongly on...

A democratic society in which the distribution of wealth is unequal elects political parties which tend to represent the interests of the poor. The clientele of such governments favour unanticipated inflation taxes to erode the real value of debt service and redistribute income from the rich to...

While overall inflation has fallen dramatically in countries like Italy and Spain, inflation in the home good sector remains stubbornly higher than inflation in the traded good sector. If nominal exchange rates are fixed, these real appreciations imply an inflation differential with countries...

It is claimed that membership of the exchange rate mechanism (ERM) of the European Monetary System (EMS) gives countries a credibility bonus which reduces the output and employment costs of disinflation. Within the EMS this arises because of the commitment of participants in the ERM to maintain...

We analyse the proposed ‘stability pact’ for countries joining a European Monetary Union (EMU). Within EMU shortsighted governments fail to fully internalize the inflationary consequences of their debt policies, which results in excessive debt accumulation. Hence, although in the absence of...

We explore endogenous monetary unification in the context of a model in which a country with serious structural distortions (and, hence, high inflation) is admitted into a monetary union once its economic structure has converged sufficiently towards that of the existing participants. If...