Exchange Rates and World Inflation: Overall Conclusions

The preceding chapters have dealt with a number of different specialised accounts of the manner whereby the regime of floating exchange rates could have an impact on the generation of inflation and its transmission across countries. These accounts embrace a sweeping range of postulates — each internally consistent as a partial explanation, but unable to provide a complete and coherent theory. While there are no compelling reasons to prefer one model over another, they all give recognition to the important role of exchange rates in the study of inflation. Not surprisingly, the current stock of empirical evidence is insufficient to determine which of the particular models offers the most apt description of inflationary process in the current regime of managed floating. Moreover, the common real shocks arising from oil price increases and other disturbances in primary commodity markets make it difficult to isolate the role of exchange rates in the inflationary episodes of the 1970s. With these considerations in mind, this chapter attempts to draw together some of the diverse strands of thought that have appeared from time to time in this volume. No attempt is made to reproduce here all of the various conclusions in previous chapters.