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The Exchange Rate as a Source of Disturbances: The UK 1979-2000

Published online by Cambridge University Press:  26 March 2020

David Cobham
David Cobham*
Affiliation:
Department of Economics, University of St Andrews
*
e-mail: [email protected]
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Abstract

Evidence is presented on the extent to which the possibility for the exchange rate to vary has been useful or unhelpful for UK monetary policy over the last two decades. ‘Large’ exchange rate changes and ‘large’ misalignments are identified, and the thinking and actions of the monetary authorities in response to the level of and changes in the exchange rate in successive monetary regimes are examined. It is argued that the exchange rate has not generally functioned as a useful automatic equilibrating mechanism or as a useful policy instrument; and that in nearly every phase there were movements of the exchange rate, or pressures on it, which for the authorities were unexpected and unwelcome. Thus the exchange rate has typically been a source of extraneous shocks.

Type
Articles
Information
National Institute Economic Review , Volume 181 , July 2002 , pp. 96 - 112
Copyright
Copyright © 2002 National Institute of Economic and Social Research

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Footnotes

∗

I am grateful to Bill Allen, Peter Andrews, Mike Artis, Charlie Bean, Alex Cobham, Rebecca Driver, Charles Goodhart, Gordon Midgley, Ed Nelson, Kalin Nikolov, Peter Westaway, Simon Wren-Lewis, George Zis and an anonymous referee for comments on an earlier draft, but full responsibility for contents, errors and omissions rests with me.

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