Michael T. Belongia andK. Alec Chrystal

Michael T Belongia is an assistant vice president at theFederal Reserve Bank of St. Louis, and K. Alec Chrystal is theNational Westminster Bank Professor of Personal Finance inThe Business School, City University London, Lynn 0. Dietrichand Lora Holman provided research assistance.

The Pitfalls of Exchange RateTargeting: A Case Study fromthe United Kingdom

“My advice has been for Britain to retain its system of flexible exchangerates and to stay out of the present arrangements of the ERM. -- - It wouldnot be in Britain’s or, I believe, Europe’s interest to join the present half-baked system.”

Alan A. Walters

INCE THE BREAKDOWN of the BrettonWoods System of fixed exchange rates in theearly 1970s, the search for a new monetaryorder has continued. In theory, the system thatwas adopted nearly 20 years ago seems ideal: itallowed exchange rates to float freely and eachcountry to pursue an independent domesticmonetary policy while the exchange rate com-pensated for differences in economic conditionsacross countries. The actual behavior of nominalexchange rates during this floating period, how-ever, has been extremely volatile in the shortrun; moreover, over longer periods, prolonged

have occurred,in terms of eco-

Although, in one sense, this volatility is primafade evidence that the major currencies havefloated freely, the desirable characteristics offloating exchange rates have been offset, in theminds of many observers, by substantial disrup-tions in trade flows that such currency fluctua-tions are thought to have caused. In the UnitedStates, for example, the strong appreciation ofthe dollar in the early 1980s and the large, per-

1Typically, factors such as relative rates of economic perfor-mance, foreign-domestic interest rate differentials, relativeinflation rates and changes in a nation’s trade deficit orsurplus come under the umbrella of economic “fundamen-tals,” linked by economic theory to exchange rate move-ments. See Coughlin and Koedilk (1990) for a review

of movements in the real exchange rates of the major cur-rencies and tests of alternative approaches to explainthem.

swings in real exchange rateswhich appear hard to explainnomic fundamentals.’

sistent U.S. current account deficit that devel-oped during the same period are often cited asthe adverse consequences of unbridled free-floating exchange rates.’ At less aggregatedlevels, the loss of jobs and market share byfirms in the automobile and steel industries areviewed by some observers as a consequence offreely floating exchange rates.

In this article, we discuss the benefits of usingmonetary policy to peg the value of the exchangerate at some desired level and analyze themechanics and likely effects of resorting to ex-change rate targeting as an approach to conduc-ting monetary policy. We first outline a simplemodel of exchange rate determination and usethis framework to argue that exchange ratepegging could produce desirable monetary policyactions only when the real economy is stable.This proposition is illustrated with a case studyof exchange rate pegging in the United Kingdomand the economic consequences associated withthis policy.

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Before discussing the mechanics of exchangerate determination, one must understand thedifference between real and nominal exchangerates. Such an understanding will explain whypegging the value of the exchange rate is attrac-tive to some policymakers.

The nominal exchange rate is the relativeprice of one currency in terms of another. Forexample, if it takes two dollars to buy one Brit-ish pound, the exchange rate could be quotedas $2.0/i; alternatively, it could be quoted as0.5U$. Many newspapers quote the exchangerate both ways.

The nominal exchange rate tells us nothing,however, about the “purchasing power” of onecurrency vis-a-vis another. The real exchangerate is useful for this purpose; it is obtained bymultiplying the nominal exchange rate by theratio of the domestic and foreign price levels.The real exchange rate (RER) can be written as

RER = E (~!_),where E is the nominal exchangeV.

rate expressed as units of foreign currency perdomestic currency unit, P is the domestic pricelevel and Pt is the foreign price level. Unlikethe nominal exchange rate, the real exchangerate is not observed in financial markets; in-stead, it must be approximated by a calculationsimilar to this.’

Distinguishing between real and nominal ex-change rates would be pointless if the nominalexchange rate and the prices of goods and ser-vices in different countries all responded to acommon influence at the same rate and by thecorrect magnitudes so that no relative priceswere changed, even in the short run. As a gen-eral rule, however, nominal exchange rates ad-just more quickly than prices to actual or ex-pected changes in economic variables.~Because Eadjusts more quickly than does (~,!_)to econom-

ic factors, the real exchange rate will mimic, atleast temporarily, movements in the nominal ex-change rate. These differences in the speed ofprice adjustments are important because, untilboth the nominal exchange rate and prices ad-just fully to a change in another variable, a na-tion’s pattern of trade and trade balance may bedisrupted.

Consider, for example, some good news aboutthe U.S. economy that leads to a 10 percent ap-preciation of the dollar but no immediateresponse in either U.S. or foreign prices. Thisevent causes a 10 percent appreciation of thereal exchange rate. This change immediatelymakes foreign goods 10 percent less expensiveto U.S. citizens and U.S. goods 10 percent moreexpensive to foreigners. Eventually, the increaseddemand for foreign goods and reduced demandfor U.S. goods (through a variety of mechanisms)will result in higher prices of foreign goods andlower prices of U.S. goods; in the interim, how-ever, foreign exports to the United States willrise and U.S. exports to the rest of the worldwill dedllne. Thus, while U.S. consumers will en-joy a temporary boost in their purchasingpower, some U.S. firms will be harmed tem-

‘See, for example, Destler and Henning (1989).‘Among the problems in making this calculation are thechoice of a conceptual measure for P and the potentialmeasurement errors associated with this choice. The CPI,PPI and indexes of unit labor costs have been used to

different results. See Batten and Belongia (1987) for adiscussion of factors that may affect the measurement ofthe real exchange rate.

Contracts, both for goods prices and wages, often arecited as a reason for sluggish price level adjustments.

calculate real exchange rates, sometimes with significantly

porarily by a decline in their domestic and ex-port sales. After domestic and foreign goodsprices adjust fully to the news that caused thedollar appreciation, the real exchange rate willhave returned to its original level and neitherU.S. consumers nor U.S. exporters will be betteror worse off.

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Typically, policymakers have made the nominalexchange rate a primary target for policy actionswhen real exchange rate changes were judgedto have had significantly adverse effects ontheir country’s domestic and export sales. Econ-omists have investigated the exchange rate-exportrelationship from two perspectives: (1) Howmuch does a change in the level of the real ex-change rate affect trade and (2) How much doesexchange rate variability affect trade? Ilieresponsiveness of export sales to changes in thelevel of the real exchange rate has been esti-mated for a variety of commodities; in general,economists have found significant effects,

From the policy standpoint, however, movingthe real exchange rate to a new level has notbeen a frequent topic of policy discussions.~In-stead, the issue has been one of stabilizing thenominal value of the exchange rate and, specifi-cally of reducing the adverse trade effects ofexchange rate variability associated with a free-floating exchange rate system. Indeed, the Euro-pean Monetary System (EMS), a cooperativeagreement among members of the EuropeanCommunity, was created in 1978 to reduce ex-change rate volatility because it was widely feltthat intra-European Community trade was beingimpeded by the costs of this volatility. It hasnever been clear, however, what those costsare.°Moreover, arguments that volatile ex-change rates impede trade because of the “in-

creased uncertainty” they generate have foundweak or no empirical support.’ Finally, eveneconomic theory does not demonstrate thatreducing exchange rate variability will con-tribute to improved economic performance.~Whether a real exchange rate that is too highor too volatile really produces short-run damageto the export sector, the presumption that suchdamage does occur is the main reason behindefforts to peg the value of the nominal ex-change rate.

Any discussion of the implications of attemp-ting to peg the value of exchange rate mustbegin with a simple notion of why exchangerates change in the first place—that is, with amodel of the factors that influence the ex-change rate. Suppose that there are two coun-tries: the home country and the rest of theworld, whose economic variables are denotedby an * The nominal exchange rate betweenthese two currencies can be written as (allvariables, except interest rates, are inlogarithms):~

(1) e = (m* -m) — h(i~—i) — k(yt —y) +

where:

e = the nominal exchange rate in units offoreign currency per unit of domesticcurrency;

m = nominal money supply;= nominal interest rate;

y = real GNP;k = the income elasticity of real money

demand;h = the interest semi-elasticity of real money

balances;’°s = a “shift” factor that reflects the impact on

the exchange rate of all factors other thanthose shown.

5While the September 1985 Plaza Accord may seem to beone exception to this discussion, subsequent meetings tothat agreement have tended to focus on stabilizing the ex-change rate around some target value.

6See lingerer, et al. (1986), pp. 17-18. for a discussion ofthe ambiguity associated with arguments of how exchangerate variability might affect trade.

‘For a review of the evidence, see Farrell et al. (1983) whoconclude that, generally, the relationship is not supportedby the empirical evidence. Deorauwe (1988), however,finds some evidence suggesting a negative association.

°SeeMeltzer (1990) for a review of the alternativearguments.

~Thisexchange rate model, based on the standardmonetary approach to the balance of payments, is takenfrom Dornbusch (1980). The model assumes that “un-covered interest parity” holds, which means that, at everypoint in time, the interest rate differential (it-i) is equal tothe expected change in the exchange rate. Thus, anyshock that affects the expected path of the exchange ratewill be reflected in the interest differential.

‘°Anelasticity, such as k or h, represents the percentagechange in one variable (e) in response to a 1 percentchange in some other variable [(i’-i) or (y’-y)]; h is a semi-elasticity because the interest rate terms are not expressedin logarithms.

18

The equation states that a country’s currencywill depreciate (e will decline) if domestic moneygrowth accelerates, domestic nominal interestrates decline, or domestic real economic growthslows relative to changes in the same variablesin the foreign country; moreover, there also areexogenous shocks that can adversely affect theexchange rate independent of the three in-fluences just described. In this model, policy-makers can affect the nominal exchange rateeither through monetary policy, which affectsm, or through policies that affect domestic in-terest rates or output; their influence on e, ofcourse, depends on relative changes in thesevariables. The shift factor, s, presumably isbeyond the ability of policymakers to control.

Equation 1 can be modified to express thereal exchange rate as follows:

(2) rer = (mt —m) — hut —i) — k(yt —s’)_(p*_p) + s,

where p~and p are the logarithms of theforeign and domestic price levels, respectively.Thus, equations 1 and 2 show that the nominaland real exchange rates are affected by essen-tially the same variables. And, empirical workshows that the nominal and real exchange ratestypically move together in the short run, sug-gesting that aggregate price levels and their dif-ferential adjust more slowly than the other fac-tors discussed above.”

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A comparison between equations 1 and 2highlights a key conclusion for any policymakerconcerned with exchange rate targets. Whilechanges in domestic monetary policy that affectm relative to mt could move the nominal ex-change rate in equation 1 permanently to a newlevel, monetary policy can change the real ex-change rate only if the nominal exchange rateand aggregate price level differential adjust atdifferent speeds. Even in this case, the changein the real exchange rate will be only temporary.In equation 2, for example, an increase in thedomestic money supply (m) reduces rer whilean increase in the domestic price level (p) in-creases it. If one believes that changes in thedomestic price level ultimately are proportional

to changes in the domestic money supply—astandard interpretation of the quantity theoryof money—equation 2 shows that these effectswill offset each other, at least in the long run;thus, the real exchange rate, but not the nomi-nal rate, will return to its former level. Indeed,this “netting out” effect could occur even in theshort run if people anticipated the monetarypolicy change and responded to it by quicklyraising prices. The conclusion from equation 2,then, is that monetary policy actions have nopermanent effects on the real exchange rate;any effect is strictly temporary.

Given equations 1 and 2, we can now con-sider two possible “sources” of exchange ratechanges. Broadly speaking, the two sources arenominal factors that originate from a change inthe money supply and real factors that originateoutside of the monetary sector of the economy.What difference does the source of the changein the exchange rate make?

Suppose that the source of the exchange ratemovement is a nominal one—that the domesticmoney stock is growing rapidly relative to thatin the foreign country. By itself, this would pro-duce some domestic inflation and a continuingfall in the currency’s nominal value. If the mone-tary authority were pegging the nominal valueof the exchange rate, however, it would beforced to buy back the “excess” money withforeign reserves or otherwise tighten monetarypolicy. As long as the foreign money supplygrowth were unchanged, pegging the exchangerate would have had the beneficial effect of for-cing the monetary authority to slow moneygrowth and domestic inflation.

In contrast, suppose some supply-side im-provement boosts domestic real GM’, causingthe nominal exchange rate to rise. The effect onthe real exchange rate depends on how muchthe effect of a lower domestic price level (orslower inflation rate) offsets the effect of thehigher real income level (or growth rate). If themonetary authority resists this rise in the nomi-nal exchange rate, however, the result will befaster money growth and a higher unnecessaryinflation.

The problem for policymakers is that only thenominal exchange rate can be observed in worldfinancial markets and, as such, exchange ratetargets also are expressed in nominal terms. For

115ee, for example, Mussa (1986).

a variety of reasons, however, policymakers havetrouble distinguishing whether changes in thenominal exchange rate are due to nominal orreal sources. Moreover, they are generally ig-norant as well as to whether these changes arepermanent or temporary.

An early example of the problem associatedwith this confusion was experienced by theUnited Kingdom in 1977. The United Kingdomhad recently started producing oil and wasbeginning the transition from net importer tosubstantial exporter of oil. Both a nominal andreal appreciation of the currency would be ex-pected under the circumstances. The monetaryauthorities, however, initially resisted the nomi-nal appreciation by selling pounds and buyingmassive amounts of foreign currencies.” Thisstrategy was later abandoned because of itsunacceptable implications for domestic infla-tion.” We now turn to a more recent episodeof attempted exchange rate pegging, which fol-lowed the same pattern as the earlier episode.

A CASE STUDY QJ~T1i~UNITEDK1..NC.DOM: 51191 1.987

In figure 1, the daily DM/f: exchange rate isplotted over the most recent three-year period.Overall, there are four striking aspects of thesedata: a large appreciation of pound against DMin February 1987, an extremely stable rate atclose to DM 3.0/f: between February 1987 andMarch 1988, another large appreciation of thepound in March 1988 and a general and sharpdepreciation of the pound throughout 1989.Each of these episodes is discussed briefly below.

The appreciation of the pound from DM 2.747/f:on February 3, 1987, to DM 2.95/f: by March 18is associated with the Louvre Accord. Thisagreement pledged cooperative monetary policiesamong the G-7 countries to strengthen what wasthen a weakening value of the dollar. Thisagreement presumably implied relatively restric-tive monetary policy in the United States andrelatively expansionary monetary policies amongthe other G-7. members, In theory, there is noreason for the pound to appreciate against theDM if both the United Kingdom and West Ger-

many are intervening similarly to support thevalue of a third currency (the dollar). Pepper(1990) has argued, however, that Nigel Lawson,then Chancellor of the Exchequer, used theLouvre Accord as an opportunity to introduce anominal exchange rate target of DM 3.0/f:.”

Although data on intervention in specific cur-rencies are not available, the actual pattern ofnet foreign exchange reserves at the Bank ofEngland, shown in table 1, is broadly consistentwith Pepper’s view. The one-year interval of anearly stable DM 3.0/f: exchange rate is assoc-iated with frequent, and often massive, foreignexchange interventions. Instead of steady inter-ventions in one direction, as one would expectfrom an effort to support the value of the dollar,the amount of intervention varies widely acrossmonths; it even switches direction, with reduc-tions in foreign exchange reserves in somemonths.

The data in figure 1 confirm this view as well.They show that, while the DM/f: exchange ratewas flat over the period, the pound appreciatedsteadily and substantially against the dollar—rising from $1.52 on February 3, 1987, to $1.90by January 1988. Thus, the evidence in both thetable and figure is consistent with the view thatthe Bank of England varied the amount of in-tervention to keep the DM/f: rate near a rate ofDM 3.0/f: while paying less attention to themovement in the $/f: rate.

Although the United Kingdom apparentlydirected its monetary policy to achieve an ex-change rate target of 3.0DM per pound through-out most of 1987, it is unclear why this objec-tive was chosen. In view of the earlier discus-sion, countries direct monetary policy to ex-change rate objectives when exports are weakand unemployment in export industries is ris-ing. In the United Kingdom, however, exportswere strong at the time this policy strategy wasadopted and, overall, the United Kingdom econ-omy was performing quite well: inflation haddeclined substantially, real growth was strongand the government was running an increasingbudget surplus.

1’U.K. foreign exchange reserves rose from SDIR2.3 billionin 1976 to SDR16.1 billion in 1g77, a seven-fold increase,

‘41n the United Kingdom, the Chancellor of the Exchequerhas ultimate responsibility for monetary policy. The Bankof England is under the Chancellor’s direct control.“See Chrystal (1984) for a thorough discussion of this

episode.

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the EMS from the perspective of its high infla-tion members is that low and stable inflation inGermany will discipline their internal policies—especially monetary policy—if their currenciesare tied to the DM. As we shall see, however, itis not enough just to peg your currency to theDM; you must peg it at the correct rate as well.

Early in 1988, the pound again began to ap-preciate strongly, both in real and nominalterms, because of a widening U.K-German in-terest rate differential on one hand and severalwell-publicized events that presaged strongerU.K. real growth on the other hand. As figure 2shows, the U.K-German interest differentialwidened considerably between December 1987and February 1988. On the real side, the end ofa ban on overtime work by miners on March 7,the announcement of a large oil discovery onMarch 8 and a large tax-reducing budget onMarch 16 are consistent with reductions in the

values of either the (i* —i) and (y* —y) terms inequation 1 and, therefore, appreciations of thepound. Each of these events would tend to raiseboth the real rate of return on physical assetsand real output for the United Kingdom inequation 1 so that (if there were no immediatechange in U.K. price levels) the real interestrate and real output differentials would declineand the pound would appreciate.

What could be done about this rise in the ex-change rate? From a theoretical standpoint, theterm (m~—m) is an obvious policy lever in equa-tion 1. And, because the money stock can becontrolled by the central bank, this is an effec-tive lever with which to achieve a reduction inits currency’s nominal value, should that be thedesired policy result. What is required is afaster growth rate of its money stock relative tothe money growth in the nation against whichthe exchange rate has appreciated.

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Figure 3Three-Month Moving Average of U.K. MO Growth

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—2 —21984 85 86 87 88 1989

How does this relate to the recent U.K. ex-perience? Figure 3 plots the growth rate of MO(the U.K. monetary base), the monetary variabletargeted by the Bank of England in the late1980s, and the target ranges that the Bank hadestablished for its policy objective. As the figureshows, while the target range for MO was beingadjusted downward, actual MO growth was in-creasing on average.’7 Moreover, a sharp in-crease in MO growth occurred early in 1988,when the pound appreciated substantially abovethe level of 3.0 DM that had prevailed for abouta year.

Figure 4 depicts the inevitable consequencesof this action. As growth in MO expanded, theU.K. inflation rate, with a lag, also accelerated.Recalling from equation 2 that faster moneygrowth in the United Kingdom will be associ-ated with a decline in the (nominal) PM/f: ex-change rate, the data in figures 1-3 show thatthe point at which the pound began to declinein value coincides closely with the time at whichU.K. money growth began to increase and U.K.interest rates fell. Thus, while expansionarymonetary actions by the Bank of Englandresulted in a reduction in the DM/f: nominal cx-

“The effects of this monetary expansion were reinforced byfour incremental reductions of 0.5 percentage points eachin the U.K. base lending rate between March 9 and May11. Thus, while expansionary U.K. monetary policy washelping to reduce the pound’s value by decreasing thevalue of the (m’-m) term in equation 2, further downwardpressure on the pound was coming from a widening of the(i*~i)term in equation 2. This sharp decline in U.K. interestrates and its impact on the German-U.K. interest differen-tial during the March-May interval also are shown clearlyin figure 2. The base rata, set by the Bank of England,was reduced from 11 percent to 9 percent. See Pepper(1990).

Another factor in these U.K. interest rate movements isthe “excess credibility” problem. The idea is that, undernormal circumstances, an investment abroad carries therisk of an adverse exchange rate movement in addition toall of the usual risks. When a country is believed to bepegging its exchange rate, however, the exchange raterisk is reduced and, for a given foreign-domestic interestdifferential, additional capital will flow into the country thatis pegging. Thus, once investors perceived and believed ina continuation of the U.K’s attempt to peg the pound,financial capital flowed into the United Kingdom and tendedto reduce U.K. interest rates.

MO

Monthly Data MO

14

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Figure 4Four-Quarter Moving Average of UK, Inflation Rate

change rate, that effort also increased the U.K.inflation rate from 4.1 percent in 1987 to 7.8percent in 1989 and 9.7 percent as of May1990.18

The final episode, the sharp decline in thepound during 1989, reflects the increase in theU.K. inflation rate, relative to the German infla-tion rate, that was produced by the excessiveU.K. monetary expansion. U.K. inflation, as mea-sured by the CPI, had averaged near 4 percentbetween 1985-87. With the monetary expansionof 1987-83 the inflation rate accelerated to apeak of 12 percent in January 1989 and stoodat 9.7 percent as of May 1990. German inflation,on the other hand, has remained relatively cons-tant, near an average of 4 percent. As equations1 and 2 indicate, domestic monetary expansionand the associated inflation will reduce a cur-rency’s nominal value with no long-run effecton its real value.

This result has led some observers to note theirony of how an attempt to peg the exchangerate to a low-inflation country (Germany) canresult in higher domestic inflation. The problemwith this reasoning, of course, is not the act ofpegging itself but, rather, selecting the wrongvalue for the exchange rate target. If, for exam-ple, the United Kingdom had chosen to pursuean exchange rate objective of, say, DM 3.3/f:,the real appreciation of the pound might havebeen accommodated without resorting to an off-setting domestic monetary expansion. But, byestablishing the target at a level too low for thefundamental economic differences that thenprevailed between the United Kingdom and Ger-many, the monetary expansion and subsequentinflation were necessary results of maintaininga PM 3.0 objective. Unfortunately, this type oferror is clear only in hindsight. The fundamen-tal problem for policymakers is how to deter-

1983 84 85 86 81 88 1989

‘8See Pepper (1990) for more detail on this episode.

mine the “correct” value for the exchange ratetarget in advance.

Volatile movements in both exchange ratesand trade flows in the 1980s have promptedmany calls for nations to join cooperativeagreements that would peg bilateral nominal ex-change rates at some target level. As this paperpoints out, however, nominal exchange ratesmay change because of changes in underlyingreal economic conditions. To maintain targetvalues for nominal exchange rates, domesticmonetary policy must pursue either an expan-sionary course that ultimately will produce onlyan increase in the domestic inflation rate or acontractionary stance that will exacerbate anunderlying economic downturn. Moreover,whatever effects these monetary actions haveon the nominal exchange rate, they will haveonly transitory effects on trade or other realmagnitudes; monetary actions will have no per-manent effect on the fundamental real causes ofthe exchange rate change.

In the European context there are two impor-tant lessons for designing steps toward Economicand Monetary Union (EMU). The first lesson isthat a system of mutuallly pegged currencies,such as the current ERM, has obvious dangers.Structural changes in one or another of themember countries may cause unnecessary infla-tion or deflation if real exchange rate adjust-ments are resisted. The second lesson is that, ifa common currency were to be established,obstacles to real market adjustments must beeliminated.

Batten, Dallas S., and Michael T. Belongia. “Do The NewExchange Rate Indexes Offer Better Answers to Old Ques-tions?” this Review (May 1987), pp. 5-17.

Belongia, Michael T. “Prospects for International Policy Co-ordination: Some Lessons from the EMS,” this Review (Ju-ly/August 1989), pp. 19-29.

Chrystal, K. Alec. “Dutch Disease or Monetarist Medicine?:The British Economy under Mrs. Thatcher,” this Review(May 1984), pp. 27-37.

Coughtin, Cletus C., and Kees G. Koedilk. “What Do WeKnow About The Long-Run Real Exchange Rate?” thisReview (January/February 1990), pp. 36-48.

Decrauwe, Paul. “Exchange Rate Variability and the Slow-down in Growth of International Trade’ IMF Staff Papers(March 1988), pp. 63-84.

Destler, l.M., and CR. Henning. Dollar Politics: ExchangeRate Policymaking in the United States (Washington: In-stitute for International Economics, 1989).

Dornbusch, Rudiger. “Exchange Rate Economics: Where DoWe Stand?[ Brook/rigs Papers on Economic Activity(1:1980), pp. 143-85.

Farrell, Victoria, et al. “Effects of Exchange Rate Variabilityon International Trade and Other Economic Variables: AReview of the Literature;’ Staff Study No. 130 (Board ofGovernors of the Federal Reserve System, December1983).

Meltzer, Allan H. “Some Empirical Findings on Differencesbetween EMS and non-EMS Regimes: Implications for Cur-rency Blocs;’ Cato Journal (FaIl 1990, forthcoming).

Mussa, Michael. “Nominal Exchange Rate Regimes and theBehavior of Real Exchange Rates: Evidence and Implica-tions;’ in Karl Brunner and Allan H. Meltzer, eds., RealBusiness Cycles, Real Exchange Rates and Actual Policies,Carnegie-Rochester Conference Series on Public Policy(Autumn 1986), pp. 117-214.

Pepper, Gordon. “Money, Credit and Inflation” (London:Institute of Economic Affairs, 1990).

Ungerer, Horst, Owen Evans, Thomas Mayer and PhilipYoung. The European Monetary System: RecentDevelopments, Occasional Paper No. 48 (InternationalMonetary Fund, December 1986).

Walters, Alan A. “A Life Philosophy;’ The American Econ-omist (Fall 1989), pp. 18-24.