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Monetary Accommodation, Conflicting Claims, and the European Monetary System

In: Distributional Conflict and Inflation

Author

Listed:
  • Richard C. K. Burdekin

    (Claremont McKenna College)

  • Paul Burkett

    (Indiana State University)

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.

Suggested Citation

  • Richard C. K. Burdekin & Paul Burkett, 1996. "Monetary Accommodation, Conflicting Claims, and the European Monetary System," Palgrave Macmillan Books, in: Distributional Conflict and Inflation, chapter 10, pages 202-224, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37173-6_11
    DOI: 10.1057/9780230371736_11
    as

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