By John Williamson
Booklet by means of Williamson, John
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Additional info for Exchange Rate Rules: The Theory, Performance and Prospects of the Crawling Peg
First, crawling gives much greater prospect of retaining control of monetary policy, as against a situation in which domestic credit has to be expanded to prevent a recession as a speculative outflow builds up in anticipation of a step devaluation, followed by a large reflux of funds after the expected change materialises (Bruno and Sussman, 1979). Second, however, a step devaluation may provide the occasion for 'forcing decision makers and social pressure groups ... into collective and simultaneous action on many fronts' (as the authors of this phrase, Bruno and Sussman, aver occurred in Israel), thus enabling necessary reductions in the real wage to be effected.
Models in which price arbitrage through the exchange rate is a central determinant of inflation have become popular in recent years (the hypothesis is embodied in both the Scandinavian model and the standard monetary model), and, at least in their extreme form, they imply the Oppenheimer result- not merely with respect to the crawling peg, but with respect to all exchange rate changes. Acceptance of this hypothesis is at the root of the recoil from support of exchange-rate flexibility that has been evident among economists in the past decade.
68): (1) Exchange rate stability (which 'does not mean rigidity'). (2) Parity changes must be related to correction of a fundamental disequilibrium. (3) Par value changes may be proposed only by the member country concerned (but this does not preclude the Fund expressing its views). 22 THEORY (4) Par value changes are a matter of international concern, which should therefore be governed by agreed international procedures. Since the basic principles were declared to be sound and deserving of strengthening (p.