World Inflation, International Relative Prices and Monetary Equilibrium under Fixed Exchange Rates

  • Michael Parkin


The questions which this paper addresses are easier to state if we begin by considering some stylised facts about the inflationary and monetary behaviour of the world’s major industrial countries over the post-war years. Figure 1 sets out for sixteen countries,1 the mean and standard deviation2 (unweighted) inflation, domestic credit expansion and reserve change rates. The average inflation rate displays the well-known features of a short rapid spurt associated with the Korean War followed by an at first gentle but subsequently more rapid acceleration. The dispersion of inflation across countries shows a strong decline from 1950 to 1953 which (with the exception of 1958 which is entirely due to a once-and-forall departure from its normal course of French inflation) never rose above 2 per cent. The well-known trends of monetary expansion are clear from the averages of domestic credit expansion and reserve changes. What is more interesting and not so widely appreciated are the movements in dispersion. It is clear that domestic credit expansion rates were becoming


Exchange Rate Inflation Rate Relative Price Flexible Exchange Rate Exchange Rate Change 
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© Graduate School of Business, University of Chicago 1977

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  • Michael Parkin

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