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Full-Text Articles in Social and Behavioral Sciences
Policy Challenges In A Dual Exchange Rate Regime, Sven W. Arndt
Policy Challenges In A Dual Exchange Rate Regime, Sven W. Arndt
CMC Faculty Publications and Research
It is known that the effectiveness of macro policies depends on the exchange-rate regime. Pertinent models have typically considered either fixed or floating rates rather than mixed regimes. In recent years, however, the dollar has floated against most currencies, while being fixed against the yuan. This paper argues that a flex-price, dual-rate model consisting of the U.S., China and the Eurozone, combined with distinct adjustment patterns in tradables and non-tradables sectors and a tendency for policy makers to treat inflation in housing as pure asset inflation, provides a plausible explanation of the great moderation and its aftermath.
The "Great Moderation" In A Dual Exchange Rate Regime, Sven W. Arndt
The "Great Moderation" In A Dual Exchange Rate Regime, Sven W. Arndt
CMC Faculty Publications and Research
In the early nineties, the U.S. economy was emerging from a brief slump, monetary policy was easy, and economic activity recovered quickly during the decade, with GDP eventually reaching and then passing the consensus full employment level. Yet aggregate inflation remained surprisingly subdued. This moderation in prices at the aggregate level persuaded policy makers to allow the easy-money stance to continue in spite of the presence of inflation in non-tradables and in housing and construction in particular. This paper uses a flex-price, mixed-exchange rate model to examine some of the major contributing factors to economic developments in the two-decade period …