The Dollar and the Policy Mix: 1985

104 Pages Posted: 27 Dec 2010 Last revised: 23 Dec 2022

See all articles by Jeffrey D. Sachs

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: June 1985

Abstract

In 1971, Robert Mundell proposed a stunning solution to the three problems then affecting the U.S. economy: high inflation and unemployment, and a weak currency. Mundell suggested that the policy mix of fiscal expansion and monetary contraction could work to raise output, reduce inflation, and strengthen the currency at the same time. This policy mix has been pursued under the Reagan administration since 1981. The paper investigates the contributions of this policy mix to disinflation and output growth. It finds that the policy mix has contributed as much as three percentage points of the reduction in inflation during 1981-84, but that the gains against inflation due to the mix will likely be lost, or more than lost, in the future.

Suggested Citation

Sachs, Jeffrey D., The Dollar and the Policy Mix: 1985 (June 1985). NBER Working Paper No. w1636, Available at SSRN: https://ssrn.com/abstract=1730027

Jeffrey D. Sachs (Contact Author)

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