Monetary policy and the exchange rate

Quarterly Bulletin 1997 Q2
Published on 01 June 1997

By Mervyn King, Executive Director and Chief Economist of the Bank.

Mervyn King argues that any coherent analysis of the implications of a change in the exchange rate must consider why the exchange rate has moved. Different explanations have different implications for inflation and monetary policy. It is for this reason, argues Mervyn King, that there is no mechanical link between the exchange rate and domestic interest rates.

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