Comment on W. M. Corden, ‘Inflation and the Exchange Rate Regime’

  • Ephraim Kleiman

Abstract

Appropriately enough for a paper scheduled for the close of this seminar, Corden’s paper, like the one by Claassen, looks for the moral of the whole discussion: Will flexible rates result in higher inflation rates than those experienced in a fixed-exchange-rates world? Conventional wisdom of the sort expounded in elementary economics courses tolls us that the answer will be positive; by abolishing the penalty of currcnt-account deficits, reserve- depletion crises, etc., flexible rates remove a constraint on governmental behaviour. This implies that the balance-of-payments penalty constitutes the only effective constraint on the desire of governments to inflate. Howrcver, as Corden points out, given the existence of some internal constraints as well, the difference between the two regimes need not be so great. In particular, there being also a penalty overinvestment abroad for inflating too little under a fixed exchange rate, somo countries may actually inflate less under a flexible one.

Keywords

Income Toll 

Copyright information

© The Scandinavian Journal of Economics 1977

Authors and Affiliations

  • Ephraim Kleiman
    • 1
  1. 1.Hebrew UniversityJerusalemIsrael

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