Sterling and the External Balance

Rudiger Dornbusch, Stanley Fischer

NBER Working Paper No. 327
Issued in March 1979
NBER Program(s):   ITI   IFM

This paper analyzes the behavior of the current account and the exchange rate in the British economy during the 1970's, and discusses the outlook, as influenced by the availability of oil revenues, for exchange rate developments during the 1980's.Both trade and exchange rate behavior are affected by, and in turn affect, general macroeconomic developments and policy problems. In the short term, the major macroeconomic problems of the British economy are its high rates of inflation and unemployment. Over the long term, the underlying problem for the British economy is its slow productivity growth relative to the major OECD economies (except that of the United States).Two major themes permeate this paper. First, the accepted laws of economics continue to work in the United Kingdom; for example, low domestic demand and increased British competitiveness improve the balance of payments and slow the fall of the exchange rate. Second, Britain's achievement of macroeconomic goals depends upon the behavior of both nominal and real wages. The inflation rate will remain low only if the rate of change of nominal wages does; full employment with stable prices and current account balance will be achieved only if real wage growth is restrained or productivity growth increases.

download in pdf format
   (4929 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0327

Published: Dornbusch, Rudiger and Fischer, Stanley. "Sterling and the External Balance ." Britain's Economic Prospects Revisited, edited by Richard Caves and Lawrence Krause. Washington, D.C.: The Brookings Institution, 1980.

Users who downloaded this paper also downloaded* these:
Cameron, Gelbach, and Miller t0327 Robust Inference with Multi-way Clustering
Dornbusch w0555 Inflation Stabilization and Capital Mobility
Dornbusch w0493 Exchange Rate Risk and the Macroeconomics of Exchange Rate Determination
Dornbusch w0473 Exchange Rate Rules and Macroeconomic Stability
Fischer w1235 Inflation and Growth
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us