Lars Jonung
Professor emeritus
National or international inflation targeting? : The Wicksellian dilemma of the Euro-outs
Author
Summary, in English
Inflation targeting is the monetary strategy of all EU member states; whether in the euro area, the two euro-outs, Sweden and the United Kingdom. The latter are now faced with two alternatives to achieve price stability: either remain outside the euro area or join it as full-fledged members. This paper examines this policy choice starting from the views of Knut Wicksell, who considered it in his 1920s analysis of an international monetary system based on price level targeting. Price stability could be achieved either within every country by maintaining flexible exchange rates or jointly on a global scale through a system of fixed exchange rates, that is through a monetary union. To him this was a choice between two ‘evils’: fluctuating price levels in the member states of a global monetary union while the average price level is maintained constant versus fluctuating exchange rates in the absence of a monetary union. To Wicksell, the choice of the proper route towards price stability was less complicated than today because he analysed it solely in monetary terms. The current choice for Sweden and the United Kingdom involves other crucial dimensions, such as the existence of nominal rigidities, and the politics of domestically issued money. Political aspects concerning the euro will be the ultimate determinants of the future monetary path for both countries.
Publishing year
2002-09
Language
English
Pages
183-197
Publication/Series
Journal of Public Policy
Volume
22
Issue
2
Links
Document type
Journal article
Publisher
Cambridge University Press
Topic
- Economics
Status
Published
ISBN/ISSN/Other
- ISSN: 0143-814X