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VOLUME 1, NUMBER 1, 2002
AUTHORS:
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Finn E. Kydland
Professor, Carnegie Mellon University
Research Associate, Federal Reserve Bank of Dallas |
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Mark A. Wynne
Assistant Vice President and Senior Economist, Federal Reserve Bank of Dallas |
TITLE:
Alternative
Monetary Constitutions and the Quest for Price Stability
(PDF)
ABSTRACT:
This article reviews the various means through which governments
and central banks have sought to guarantee long-run price stability.
Finn Kydland and Mark Wynne argue that monetary regimes or standards
can all be viewed as more or less successful attempts to overcome
the well-known time-consistency problem in monetary policy. The
classical gold standard, which prevailed in the late nineteenth and
early twentieth centuries, can be interpreted as a monetary policy
rule that delivered long-run price stability. The fiat monetary
standard adopted by countries following the abandonment of gold
allows greater discretion on the part of monetary policymakers and
has been characterized by greater long-run price instability.
Countries have tried through a variety of means to regain the
benefits of price stability that prevailed under the earlier gold
standard by limiting the scope for discretionary actions on the
part of central bankers. A close analogy exists between the gold
standard and the currency board arrangements proposed for many
emerging market economies in recent years.
SUGGESTED
CITATION:
Kydland, Finn E., and
Mark A. Wynne (2002), "Alternative Monetary Constitutions and the
Quest for Price Stability," Federal Reserve Bank of Dallas Economic
and Financial Policy Review, Vol. 1, No. 1,
www.dallasfed.org/research/efpr/pdfs/v01_n01_a01.pdf
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