November 03, 2019

If as we believe inflation is a monetary phenomenon and a low and steady inflation rate is a desirable objective, then during the last few decades the major central banks have done an outstanding job in delivering a low and steady inflation. Furthermore, as we have already argued slightly higher US inflation rate accounts for a low and steady depreciation of the dollar. This in turn yields an important implication: Any large fluctuations in the foreign exchange value of the dollar must be attributed to non-monetary factors.

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