The Overvaluation of Sterling Since 1996: How the Policy Makers Responded and Why

23 Pages Posted: 2 Jun 2006

See all articles by David Cobham

David Cobham

Heriot-Watt University - School of Management and Languages

Abstract

A large and sustained nominal appreciation in 1996-8 led to a serious and continuing overvaluation of sterling which has been associated with severe pressure on the manufacturing sector. The policy makers had difficulty in understanding past and forecasting future movements of sterling. They considered, but rejected, suggestions for foreign exchange market intervention and suggestions that interest rates should be set differently to reduce the overvaluation and relieve pressure on the tradable goods sector. One reason was that the exchange rate might react to such decisions in an erratic way. But if that is so the monetary framework needs to be revisited.

Suggested Citation

Cobham, David, The Overvaluation of Sterling Since 1996: How the Policy Makers Responded and Why. Economic Journal, Vol. 116, No. 512, pp. F185-F207, June 2006, Available at SSRN: https://ssrn.com/abstract=905967 or http://dx.doi.org/10.1111/j.1468-0297.2006.01096.x

David Cobham (Contact Author)

Heriot-Watt University - School of Management and Languages ( email )

Edinburgh EH14 4AS, Scotland
United Kingdom
+44(0)131 451 3495 (Phone)
+44(0)131 451 3296 (Fax)

HOME PAGE: http://www.sml.hw.ac.uk/Staff_Profiles/DavidCobham.html

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