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Exchange Rate and Monetary Policy in a World of Real Exchange Rate Variability

In: Exchange Rate Policy

Author

Listed:
  • Pieter Korteweg

Abstract

In this paper we shall discuss in broad outline the main sources of exchange rate variability that characterised the 1970s. We shall try to distinguish between the sources of nominal exchange rate movements such as differential growth rates of money per unit of output, and the sources of real exchange rate movements such as the discovery and exploitation of North Sea oil and natural gas. Following that we shall consider the possible role of monetary policy in preventing such nominal and real exchange rate movements from occurring or affecting the spot rates of exchange. Specifically, we want to raise the question of what monetary policies should look like in order to obtain exchange rate and price level stability, whether pegged-parity arrangements like the current EMS are of any help in this respect, whether exchange rate stability is compatible with price level stability and, if not, what should come first, and whether exchange rate changes can be instrumental in changing a country’s competitive position and equilibrating its balance of payments.

Suggested Citation

  • Pieter Korteweg, 1982. "Exchange Rate and Monetary Policy in a World of Real Exchange Rate Variability," Palgrave Macmillan Books, in: Roy A. Batchelor & Geoffrey E. Wood (ed.), Exchange Rate Policy, chapter 4, pages 135-169, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-1-349-16863-7_5
    DOI: 10.1007/978-1-349-16863-7_5
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