Imported inflation and monetary policy. A comment
72 1024x768 In their article Imported inflation and monetary policy , I.O. Scott and W.E. Schmidt criticise the argument that monetary policy cannot be used as a weapon against inflation in a surplus country under a regime of fixed exchange rates. The present note examines their criticism and finds it wanting in several respects. The author argues that the “ external constraint ” is a significant barrier to the imposition of tight money in a surplus country - unless the supply of foreign capital is inelastic from a very early stage, which would be unusual. Moreover, the larger and more persistent the overall surplus, the greater the eventual risk of “ internal constraints ” becoming operative as well, thus putting another limitation on monetary policy at a subsequent stage. Normal 0 14